The Internet 2.0: BlockchainPublished on October 12, 2016
For those of you not familiar with it, blockchain is a technology that some say will enable the next generation of the internet, The Internet of Value.
When I told a few people that I was writing a blog post about blockchain their reactions ranged from “Wow, that’s complicated; good luck!” to “Huh?” For those of you not familiar with it, blockchain is a technology that some say will enable the next generation of the internet, The Internet of Value.
Some refer to today’s internet as the Internet of Information; it’s a global system of interconnected devices that transformed how billions of people share information. The Internet of Value would transform how people share and trade value, with value being things like money, shares of a company, property deeds, royalties, votes, etc.
Having heard a lot of buzz about it, I wanted to find out more. So I spoke with Michael Young, Chief Technology Officer of Paycase, a company founded on blockchain technology, to help me get started. What I’ve put together is a post to help retailers – and others – understand the basics of blockchain and, more importantly, begin to understand its wide-ranging implications.
So what is blockchain?
One of the things that seems to trip people up about blockchain is the mechanics of how it works – it’s complex and unlike what we’re used to.
Here’s a slightly technical definition of blockchain. Most of us don’t know exactly how the internet works, but we certainly understand and appreciate the benefits! So if you find this a bit complicated, keep reading, the rest of the post isn’t technical.
Blockchain is a database that maintains records and manages transactions. Blockchains are kept on large distributed networks of computers. Rather than having a central authority approve transactions, blockchain uses its network to approve “blocks” or transactions, which are then added to a chain of blocks. Computer coding is used to keep transactions secure, and the distributed nature of the transaction approval process makes the system harder to tamper with.
The benefits of blockchain include:
- Quick, public (or private) access to vast amounts of data;
- Data that is: (a) reliable, (b) nearly impossible to alter, and (c) linked to related data and transactions;
- Protection of confidentiality for the people whose information is stored on it;
- Elimination of the need for a middleman to make transactions secure; and
- The potential for a relatively low cost per transaction.
So how would you use it?
It is still very early days for blockchain – something like the late 1980s / early 1990s were for the current internet. So uses will continue to evolve. However, a big focus has been on its ability to disrupt major elements of financial services.
It can allow for things like secure peer to peer lending and payment by digital currencies. This could provide opportunities for banks to increase their efficiency, and could also take out the need for middlemen like banks in some cases. As well, it could help provide financial services to the two billion people worldwide who don’t have bank accounts; and provide services like secure and accessible land registries and proof of ownership which could be very helpful in politically unstable countries.
Some of us are aware of blockchain because of its role as the backbone of bitcoin, a digital currency that’s had some sizeable swings in value and security breaches. There are many factors at play. I recommend not allowing what might be a negative first impression from discouraging you from learning more. Some compare what’s happening with bitcoin to what happened with pioneering music sharing service Napster; there were issues with Napster, which actually led to it being shut down, but it ended up paving the way for Spotify and others to transform the music industry.
How would you use it in Retail?
Since blockchain is particularly beneficial when people want to link large amounts of data from a variety of parties, it could have interesting implications for retailers. Here are a few applications that people are working on:
- Product Traceability. Providing traceability of goods, including in food (which could help retailers find contaminated products during a recall, provide proof of origin, etc.) and luxury goods (allowing retailers to prove products are authentic).
- International Shipping. Providing accurate, authentic and easily accessible records for international purchases rather than using paper bills of lading, etc., which could reduce costly mistakes, fraud, and delays.
- Payments. Providing alternate sources of payment via digital currencies allowing for reduced costs in areas where transaction fees are high, for example when dealing with foreign currencies and credit card fees.
- Financial Audits. Reducing the time and effort associated with financial audits.
There are likely many more benefits, including those related to getting better customer data in instances where customers think it’s their interest to disclose it.
Like in financial services, there are both opportunities and risks. One risk is the emergence of peer to peer commerce rather than going through middlemen, particularly in situations where the retailer acts as a marketplace like eBay or Spotify.
Who is investing in blockchain?
Over a billion dollars of venture capital has flowed into blockchain related start-ups, including almost $300 million in the first half of 2016 alone. Over fifty of the world’s leading financial institutions have joined a consortium to design and build blockchain solutions. MasterCard is experimenting with it to see how it might integrate with their core systems. NASDAQ launched a blockchain-powered exchange for privately held companies. You get the picture; it is getting serious attention.
While much of the focus of blockchain has been on financial services, a few retailers are also investigating and testing the blockchain waters:
- British grocery chain Co-op Food is working with blockchain startup Provenance on a traceability pilot for some fresh foods.
- Overstock.com has been a leader in allowing customers to pay with bitcoin and has a subsidiary focused on developing and commercializing financial services related blockchain applications.
- In August, Japanese e-commerce leader Rakuten created a “blockchain lab” to research and develop blockchain applications for the fintech and e-commerce sectors.
- Alibaba payment subsidiary Ant (which operates Alipay) has created a blockchain to help make charities more transparent and accountable.
- OpenBazaar, which launched this year, is a blockchain based marketplace that allows people to trade peer to peer paying with Bitcoin.
Like many innovations, the speed and success with which blockchain applications become an important part of our lives depends on resolving technology, regulatory and consumer acceptance issues. Obviously with so much money invested in blockchain solutions, there are a lot of people with an interest in making this happen.
What does this mean for you?
Some say the impact of blockchain will be as big as that of the Internet of Information. However, predicting the future and exact uses of blockchain is something like trying to predict the future of the internet back in the late 1980s and early 1990s.
If you were going to have a ‘Back to the Future’ experience and could warn 1990s taxi and camera companies that they would eventually be disrupted by upstarts like Uber and Apple, it would have likely seemed too hard to imagine.
That said, good advice back then would have been, “Pay attention to the internet!” Stay current with its developments, and make sure you’re very proactive in identifying and addressing both the threats and opportunities as they evolve. That’s good advice with blockchain, too.
With that in mind, here are a few ways to get started as you begin your journey with blockchain:
- Keep reading about it and don’t let its complexity discourage or delay you
- Follow what companies like Co-op Food, OpenBazaar and others are doing with blockchain
- Review this and other technology-enabled innovations and make sure your strategy addresses those that are likely to be most impactful for your business
Like most complicated things, once you find a place to start, it will become easier to learn more. Start now and proactively identify which disruptive technologies will be most impactful for your business so that you become the disruptor instead of the disrupted.
If you have any questions please feel free to email me directly at email@example.com
Thank you to Michael Young for his help. Michael is Chief Technology Officer of Paycase, a company that allows people to send money to friends and family around the world securely, quickly and cost effectively using blockchain technologies.