Breaking Down Blockchain for Marketers
Human beings are paradoxical creatures. We get excited by new technologies, we want the upgrade, we buy the latest products and we love new gadgets. At the same time though, we view new technologies and ideas with an aura of scepticism and doubt. Many of us listen to innovators and entrepreneurs with uncertainty and unease, often feeling a mix of emotions that range from excitement to full on anxiety.
It was believed that the invention of the radio would lead to anti-social behaviour by keeping everyone indoors and away from shows and other communal activities. The invention of the telephone came with the concern that no one would talk directly to each other anymore. While when the first cars hit the roads, people went as far as to introduce the “Red Flag Laws”, which stated that someone had to walk twenty feet in front of every vehicle waving a red flag to ensure these rogue machines travelling at 20 km/h didn’t get out of control. More recently, Amazon and the arena of eCommerce tried to convince people that it’s safe to send money through the internet – it’s no surprise there was initially met with widespread apprehension.
What this shows us is that even the most revolutionary inventions such as cars, and the World Wide Web, were not always welcomed with enthusiasm and confidence. And this is the position many of find us in today with regards to the Blockchain technology.
The Fundamental Flaw of the Internet
To buy something online, we hand over our sensitive credit card information and trust that the person on the other side is who they say they are, won’t steal your details and won’t take more than they’re allowed to. In turn, they must trust that you are the owner of the credit card. This reliance on trustworthiness leads to credit fraud and identity theft.
“The one thing that’s missing but will soon be invented is a reliable e-cash”.
– Milton Friedman
What Milton Friedman means by e-cash is the ability to carry around a currency of value as easily as we carry around cash. When a customer makes a purchase from a merchant with a credit card, money doesn’t fly through the airwaves straight to the seller. A credit card payment sends a signal to the Bank, the third party, to deduct an amount from one and add that amount to another’s bank balance. It is this transaction and the involvement of a third party that lends itself to fraud and other manipulations of the system. We then end up paying Insurance costs to minimize the danger of crime and Bank costs to pay for the transactions. Alternatively, carrying cash is impractical for the most part.
Therefore, what’s needed is a “digital cash” – a currency that doesn’t rely on a third party to be managed, that is carried easily but isn’t tangible, and that eliminates the risk of fraud. Today, these types of digital cash exist. The cryptocurrencies go by the name of Litecoin, Ethereum, Zcash and Bitcoin.
A Brief History of Currency
Before the financial system that we know and use today, we used gold as a currency. Although gold comes with its own issues, such as it’s not easily divisible and it can get heavy to carry around in your pocket all day, it couldn’t be as easily inflated as today’s currencies can be. The hyper-inflation of the Zimbabwean dollar and the Venezuelan bolivar are just two examples of the many problems that can arise with the inflation of national currencies.
It’s not unplanned – everyone knows that ultimately financial systems end and new ones are created. During the 15th century, Portugal had the Reserve Currency, followed by Spain, Netherlands, France, Britain and today, the US dollar.
In this graph, the size of the flag is proportionate to the timespan that that country was the World Reserve System. The US dollar is almost exactly at the point in which, historically, there has been a new World Reserve System.
In addition, the World Economic Forum said that Bitcoin will “become the beating heart of the global financial system,” Golman Sachs says Blockchain is “going to change everything” and The Economist said that “Blockchain is the most important invention since the Internet.”
The Relationship Between Blockchain and Bitcoin
Bitcoin is to Blockchain what email is to the Internet – Blockchain is the technology that powers Bitcoin.
Lorien Gamaroff, South Africa’s leading Blockchain expert, explained the most important thing to know about Bitcoin is that it’s a digital currency which has no central authority, and instead there are volunteers positioned around the world to which bank ledgers are distributed. Hence, the most important word of the conversation is “decentralisation.” No one central figure manages it, but everyone can participate in it.
For the technology to work, it had to incentivize people to use it – everyone who uses the system is given a token called a Bitcoin and these tokens increment their balances. And with these rewards, Blockchain has provided a new type of Internet – an Internet of value, instead of an Internet of Things. It is because there is no central authority, and finances cannot be manipulated by anyone anymore, that all the experts are so excited about the Blockchain technology.
Since its inception, Blockchain has experienced waves of excitement and doubt. Gamaroff explained at the Meltwater Biz Breakfast on Breaking Down Blockchain that this is not unusual for emerging disruptive technologies. In fact, the Gartner Hype Cycle accurately explains it.
At first, the promise of a break-through technology inspires media exposure and significant publicity. Shortly after the innovation trigger, it hits the Peak of Enlightenment – stories of success are met with stories of failure. Doubt sets in, traders and investors withdraw. Publicity wanes to the lowest point – the Trough of Disillusionment, before evening out to the Plateau of Productivity, where mainstream adoption takes place.
Gamaroff estimated the Blockchain technology to be at the tipping point of the Peak of Enlightenment. As a result, it has experienced extreme volatility and will still experience a dramatic downfall of hope before it is adopted by mainstream and begins to influence our daily lives. The inception of the Internet and the NASDAQ Composite went through the same cycle.
How Blockchain Will Affect Every Industry
Gamaroff also gave a brief tour of all the sectors and industries that the Blockchain technology is changing, the businesses that it is being used in and how it can affect all our lives and not just the lives of “techies.”
From the top in a clock-wise direction:
- The financial sector: Blockchain will affect how we deal with, manage and transact money and payments
- The Stock Exchange: Ability to send shares of Bitcoin directly without going through any banks or Stock Exchanges
- Law: Smart contracts will disintermediate the Law sector
- Internet of Things: With Blockchain, these Things will not only be able to communicate with each other, but also transact with each other
- Identity: Blockchain will give businesses and individuals the tools to control and protect identities.
- Provenance: We will be able to tell the origin, ingredients, authenticity and quality of everything we purchase.
- Health: Safe and secure health records
- Title deeds: Ability to send title deed directly to another person who them immediately becomes the owner of the house
- Government: Will be able to see exactly how many votes are coming in, where and when.
- Security for information
- Trade finance
- A decentralised world: A world without Google Drive or Dropbox, where everything is stored everywhere, and there are micro-transactions happening every second.
As payments become easy and direct, products increase in quality, and services become automated, Marketing processes will too evolve and companies will have to adapt or risk folding. Even more than being paradoxical, human beings are creative and innovative. Technologies will continue to develop and businesses will continue to disrupt themselves.
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