By tokenizing everything, blasting away middlemen and automating trust, Block-Chain stands to significantly shift the basis of economic activity and put a huge range of industries and businesses on the endangered species list, writes MetaliCoin founder Jeremy Samuel.
BitCoin and crypto-currency are starting to make an impact in mainstream media and the popular consciousness. After all, just in 2017, BitCoin has gone from $1,000 to almost $6,000 USD and over $2.3 billion of capital has been raised through Initial Coin Offerings (ICOs) – more than all venture capital funding – in spite of regulatory uncertainty, scams and hacks.
While these numbers are exciting and people are rushing to participate in the hype, the real, business-impacting long-term story that every business should be paying attention to is what sits behind the hype… the Block-Chain technology.
Block-Chain is a fundamentally different technology approach to previous computer systems. It is highly decentralised, smart and secure. There is a real chance that Block-Chain will bring more change to the way you do business over the next few years than the internet has brought over the past 2 decades.
Forget about how the technology works – after all, you don’t need to know how DNS servers work to understand the impact of eBay and Amazon on retailers – and think about the capabilities Block-Chain enables to understand the threats and opportunities for your business.
Block-Chain will put a wrecking ball through most of the economy because it:
- Monetizes everything
- Destroys the middle man
- Automates trust
Everything is Money
It can be a little hard to get your head around, but Block-Chain actually lets anyone create their own money. After all, money is simply an agreement that everyone will exchange the agreed “token” (a piece of silver, a piece of paper, electric images on a banking system), or real things (an apple to eat, an accountant to do your books…).
So, if you can create your own money (that is cryptographically secure and widely accepted), then you can ascribe value and liquidity to a whole range of things where this wasn’t possible (or easy) before. What kind of things?
Take, for example your house. Without a Block-Chain, you can either sell your house or keep it. With a “house-coin”, you can trade very small units of your house to free up equity. Of course, in this kind of model, you don’t really require a real-estate agent because the coin does the work.
Or consider your personal, demographic and internet usage data – something that big, centralised services like Facebook and Google take in exchange for “free” use of their services. What if, instead, you could control all of your own data in your own Block-Chain based account and let businesses bid for access to the data they want in return for “data-coins” that you can spend for other digital services?
There is a well known challenge called the “attribution problem” that pops up in fields as diverse as artificial intelligence (which parts of the system are actually making the most contribution to solving this problem?) and environmental management (which part of the system is creating the pollution?), amongst many others.
The attribution problem is really an economic question. The elegant answer that Block-Chain enables is that you actually create digital money and each small part of a system either gets “paid” to deliver an outcome (sing you a song, send your photo to someone, give you an item) or “pays” for that outcome (creating a unit of pollution, consuming some resource). This approach allows businesses to put a group of services together into a Block-Chain based system that can create very efficient outcomes where each value step is tracked.
In our own business, MetaliCoin, we allow mining companies to turn previously highly illiquid assets – metals still in the ground, yet to be fully quantified or mined – into a liquid token that can be used to fund the mining operations. This creates a whole new funding class for miners that is very cost effective. It also allows people who provide funding to trade between metals in different mines or to get their money back in “old world” money rapidly, where previously they may have had to wait years.
Cut Out The Middleman
Most of our current transactions are mediated by some kind of middleman. These so-called “intermediaries” are massive, highly centralised corporations. Our payments go through banks, as do our loans. Our conversations and text messages go through telcos. Our risk protection goes through insurance companies. Our groceries go through huge wholesalers and massive retailers. Even our music purchases go through iTunes or Google-Play and the management of artists rights is highly centralised.
Block-Chain systems create the ability for parties to transact directly, without the middleman. This means, for example, that lenders can connect directly to borrowers, communication can go from person to person and you can listen to a song and pay the artist directly.
Most of the functions and protections that were traditionally provided by the middleman can now be delivered by the system. Who needs an insurance clerk to file and process manual paper when the system can do it? Moreover, why would consumers want their data held in closed, proprietary corporate databases when the customer and the suppliers can exchange this information securely?
So, on MetaliCoin, the traditional middleman function of preparing a mining project for investment, creating the funding documentation and promoting the capital raising is done by the platform at much lower cost, with complete transparency and reaching a global audience.
In your business, it becomes very important to take a hard look at the parts of your operation that create real value – where you may be able to reach past the middlemen and transact directly with your end customers in an efficient and cost-effective way – and those where you are simply being a middleman yourself, or charging for manual processes and see how you can put those functions on the Block-Chain.
When people first encounter crypto-currency and Block-Chain, the first reaction is usually, “But it’s just bits in a computer, there’s nothing behind it…” They hold this view until they realise that:
- Most “fiat” (national) currency is also bits in a computer, based only on government fiat and
- That larger scale systems (banking, telecommunications, bureaucracies…) are subject to hacking, corruption, gaming and outright fraud, so they lack trust in many ways, too.
The next step is to appreciate that Block-Chain inherently replaces many of the trust functions normally delivered by licencing, regulation and large organisations. Block-Chain does this inherently in its structure because everything is distributed, encrypted and “immutable” (information gets written once when the network agrees it is valid and then can’t be changed).
Part of the trust function is also provided by so-called smart contracts, the rules that are written into the transactions themselves on the Block-Chain. These smart contracts define the rules of exchange and hence cannot be corrupted, messed with or given special treatment. In jurisdictions where there is pervasive corruption, this aspect of Block-Chain will bring enormous benefits and boost economic development.
In MetaliCoin, the smart contracts that miners enter are not just for delivery of a quantity of metal on a given date, but to adhere to agreed milestones and timelines, submit to independent expert verification and even forfeit their asset if agreed performance agreements are not met.
Given that Mark Twain, over 100 years ago, famously defined a gold mine as “a hole with a liar standing next to it”, this level of automated trust significantly constrains the ability of miners to be fast and loose with the truth. Having this kind of oversight without Block-Chain would be prohibitive and subject to corruption.
By tokenizing everything, blasting away middlemen and automating trust, Block-Chain stands to significantly shift the basis of economic activity and put a huge range of industries and businesses on the endangered species list. This holds particularly true for businesses built on centralising information and transactions in a closed environment, intermediating between consumers and producers and providing some kind of trust.
On the other hand, if you can get extremely clear on the portions of your business that add real value to customers and figure out how to tokenize those, you stand to enjoy massive growth on the Block-Chain.