Blockchains are being talked about everywhere it feels like. Companies, institutions, friends and family they all ask about it, and (most of the time) trying to understand what this new technology is, and what it can do for them. In the past I did a non-technical explanation of how blockchains work. But you don’t really explain why you would use something, by explaining how it works. So in this blog I’m going to try to explain what value blockchains can bring to almost any company.
In the following sections I will cover (1) why blockchains are valuable to a companies (2) how the value is facilitated (3) who are the people that needs to execute (4) concrete examples of what can be done.
There are many reasons why a company would adopt blockchain technology, but two common keywords I keep coming back to are liquidity and optimisation.
With more liquidity, companies will make money by quickly, automatically and at lower costs…
- …settle payments and remittances, leading to earlier access to capital
- …make assets liquid, by lending capital from the assets themselves
- …re-invest aforementioned capital to make money on margin
With more optimisation, companies will save money by quickly, automatically and at lower costs…
- …move value or assets directly between two parties, without intermediaries
- …let market forces optimise the utility of assets
- …optimise or audit decisions based on accurate accounting of data
These are all very broad strokes. I’ll get to the details in a bit!
Blockchain technology is unique in that it facilitates all of the above by enabling the following three things in a single atomic transaction, and without any intermediaries:
- Transfer of value
- Enforce business logic and legal rules
- Keep accurate and auditable accounts of all records
In order to have a wide impact on businesses of all kinds, we cannot only speak of digital assets that are native to blockchains, such as the Ether asset on the Ethereum blockchain. What must happen is tokenisation of material assets as well. These digital tokens of material assets must be possible to enforce by a legally binding smart contracts, also known as the Internet of Agreements.
It’s important to understand that nothing of what we mentioned so far are technical problems by themselves. Blockchains enable radically new kinds of financial and legal models in which companies could operate. For a company to be successful in implementing these new concepts, these are the skills I believe needs to be hired:
- General economists (i.e. not necessarily financial economists)
- Mechanism designers
- Mathematicians and/or cryptographers
In my opinion, the last people a company need to hire in this space are (and I hate to say this) technical engineers.
Technical engineers will have a job in this space in 3-5 years. Until then, the value of blockchains are proven by concepts in the form of economical models and mechanism designs. At this point, I don’t think we prove value of this technology with technical designs.
Here I will explain three use cases that directly apply to almost any company, because most companies (a) need financial liquidity (b) are involved in some form of supply-chain and (c) have customers with some amount of private data.
A company can archive greater financial liquidity in two ways (1) faster settlements and remittances and (2) having access to instant liquidity in payables (e.g. invoices).
The first instrument for financial liquidity is pretty obvious. A stable cryptocurrency (e.g. stable against USD) coupled with automatic smart contracts will do settlements orders of magnitude faster than the current financial system.
The second instrument for financial liquidity is a bit more interesting. If digital invoices were tokens on a blockchain, as soon as your company sends the invoice it can be locked into custody of an autonomous and legally binding smart contract. This contract would then mint money (stable cryptocurrency pegged to USD) equal to the value of the invoice. This creates a kind of collateralised debt from the invoice itself, that I have written about before. When the payee eventually pays the amount to the smart contracts, the money will be burned, in order to wipe the debt of the invoice issuer.
Similarly to how a company can achieve liquidity of digital invoices, a company could liquidate material assets in a supply-chain if these material assets have legally binding smart contracts on a blockchain.
Imagine if a company own a large expensive warehouse, with lots of storage shelves. If each shelf was represented by a smart contract, then shelves could be autonomously rented or traded between parties who need them more. This essentially optimises the utility of the warehouse, by the creation of a liquid market.
The same example would apply to production lines, delivery trucks, ship containers or even human talent.
A blockchain is uniquely positioned to give people ownership of data, through the use of digital signatures, that I have written about before. If a company would incentivise their customers to manage their own private data on the blockchain, in a encrypted and secure way, then this could enable a very powerful liquid economy of data.
A great example is the problem around access to high quality private health data, for pharmaceutical companies that are running clinical trials to develop treatments. With a liquid market for private health data, pharma companies could bid on certain types of data that private persons then could lease for a fee.