The Promise of Blockchain Technology

The World Without Middlemen

 

One of the biggest achievements of the blockchain technology is that the technology eliminates middle men and third parties. It does so because it stores information in a way that is timely, secure and immutable. For example, on a financial blockchain network all transactions become a part of the blockchain and it is not possible to delete them or alter them, which means that it is possible for the network to keep track of all the money both internally, in a way that people do not see what the software is doing unless they examine the software code, and externally, meaning that a person can check how many coins the network has in circulation and what has been happening with these coins.

For example, the Bitcoin network adds coins to circulation by giving them as rewards to miners. For the first 210,000 blocks of the blockchain the reward was equal to fifty bitcoins per block. It then divided in half and became twenty-five coins per block. As of the writing of this article, the reward is 12.5 coins. All of this means that since 2009, the Bitcoin network has added over seventeen million coins into circulation. You can see this and other up-to-date info about the network by visiting http://www.bitcoinblockhalf.com/ For the Ethereum network, you can see the total supply of coins here https://etherscan.io/stat/supply

All of this means that if two parties trust a blockchain network to do what it does, then they do not need a third party between them before they engage in a transaction. This is how blockchains such as Bitcoin, Ethereum and others exist without a government, a bank or a central office. A blockchain network itself is a third party.

In a world without middle men, things can get much cheaper and much more efficient in a number of ways.

 

Blockchains in the financial industry

For example, a 0.5% transaction processing fee may not seem like a lot, but if you are a business than uses a supply chain with 10+ parties, costs can add up very quickly.

It is easy to see how blockchain could transform an industry when looking at what is currently happening in the banking industry.

The banking industry has a lot of shared resources and parties that charge others to get access to those resources. An example of such a network of resources would be the VISA network of ATM machines. In such a network, a bank typically owns a machine, but then customers of other banks can access the machines, too. This system is bases on a structure of complex agreements and backend. The reason why this system is possible that is that there is a central authority that owns both the databases and the processing network.

With blockchain, there is simply no need for VISA because in essence VISA is a third-party intermediary. This is one of the reasons why cryptocurrency ATMs are not ATMs in the true sense. A regular ATM connects to a banking network while a cryptocurrency ATM typically connects to a cryptocurrency exchange.

In addition to this, with blockchain there could be a blockchain network on which banks would manage debit cards and credit cards that they issue without any central authority or layer.

 

Blockchains and supply chains

Complex supply chains could also benefit from blockchains tremendously because currently they are suffering from a lot of small frictions. An example of such friction would be a port having a different database management system from the vessel operators and systems not communicating with each other or communicating with significant delays. Because of this and other issues, many manufacturers choose not to sell less than a container of their products. For them, the hassle of dealing with shipping a small number of products just isn’t worth the profit. Using blockchains in supply chains can help the industry get rid of a lot of friction, which would reduce the costs and it turn open a lot of new markets to manufacturers. Any transformational technology like blockchain that can help small companies compete more effectively against giants can have very positive effect on the global economy.

 

How blockchains can help embrace complexity

Currently, many of the organizations keep the number of their partners small because managing complexity can be very expensive. However, this is not the case with blockchain because the technology can take care of complexity. Engaging in direct transactions with customers, finding and locking in new partners, shipping and other parts of a business can become easier with blockchains even for small players and small transactions.

A company like Wal-Mart is a great example of this. Wal-Mart is committed to offering low prices to its customers, which is why it has to keep transaction costs and the costs of introduction of new product lines down. For these reasons, it is often looking for products that would be a good fit for a large percentage of its customer base. Dealing with a lot of small merchants simply does not make financial sense. However, if the costs of product introduction were to go down, the number of suppliers could increase significantly and customers could enjoy a much greater variety of products. This is what a company like Amazon has already been doing for a number of years because the costs of Amazon introducing a new product are much less compared to Wal-Mart introducing a new product. While it is hard to imagine Wal-Mart offering a similar variety of products that Amazon offers, by using blockchain the company could expand its product lines significantly.