Just prior and during holiday season time off, I went through an article reviewing the current state of blockchain. I’m used to these types of write-ups being very shallow and full of unsubstantiated marketing buzzwords. While this one had that as well, it actually felt like a decent survey of what the state of market and r&d look like ‘out there’. It was put out by a group called ‘CB Insights’.
On blockchain itself, I tend to find myself still struggling with mapping the underlying ‘distributed ledger’ technology to something that feels like currency – since that’s how it was initially put forth. I never did (and still don’t) quite grok the link between a computer doing ‘something’ and having that labor be converted to digital value. How does that work? Who determines what the ‘value’ is? And what exactly is the connection to blockchain and the ledger? I think some of my issue with the blockchain piece is that I don’t myself have a lot of experience with the use of any type of ledger.
The paper in hand is nice in that, as a survey of it’s use and development, these examples give me a better idea or gestalt of what blockchain is. It helped, in reading this, if I thought of it as a book-keeping device with built in error checking that has no ‘owner’. Most of the areas of relevance described here have a need for that type of facility. It’s actually a little depressing to me since, while clearly needed, these are mostly things that I would have taken for granted; they fall into the category of things that you only notice when they do not work well. Improving them just doesn’t feel like a real advancement of anything novel or creative.
Those misgivings aside, the paper frames the status of blockchain by looking at use cases along two axes: 1) Market Strength; and 2) Industry Adoption. Market Strength means how broad and wide is a particular need. High market strength means the adoption of a particular use for blockchain would impact a very large part of a particular market, draw lots of attention in earnings transcripts commentaries, draw lots of quality investment and capital. High Industry adoption means lots of industry attention, lots of customers engaging with a use case, more and more start-ups appearing. Then these two dimensions split the universe into 4 categories:
(Italicized applications are ones I look at a little more in detail below).
Transitory: High adoption, low market strength: These are use cases in play today but play to limited market. Examples explored:Initial Coin Offerings, Smart Contract Platforms.
Experimental: Low adoption, low market strength: Identity Management, DAOs, Non-fungible tokens, Data marketplaces, decentralized exchanges.
Necessary: High adoption, high market strength: Bitcoin mining, Fiat-crypto-exchanges, Supply Chain Distributed Ledger use.
Threatening: Low adoption, high market strength: DLT in IoT, Bitcoin, Privacy coins, DLT in clearing and settlement.
Some interesting ones:
Identity Management – Even though it is not discussed in detail, it could impact places like credit reporting agencies or Lexus Nexus to a great extent. I think the idea is that blockchain technology offers a way to have a source of truth about an identity and own it, authenticating changes that defeats transitory alterations suggestive of fraud and allowing an ownership of when an identity is used by anyone. It’s still very vague, but it seems to me like the seeds of this are potentially revolutionary and something to look for.
Supply Chain Distributed Ledge – this falls into that kind of boring area (to me anyway) that could none-the-less be important. The idea is that the supply chain in most markets feature exchange of things between parties at multiple points – creators/growers/retailers/transport/ etc. The pattern repeats throughout economies. DLT offers a common, error-correcting, efficient way to manage that data flow.
Smart Contract Platforms – I was a little surprised to see this veer into the ‘transitory’ area since, as I understand it, it represents a potentially natural way to fulfill activity associated with commodities and stocks and the like. Why rely on humans to figure out when to execute something (which is my understanding of what smart contracts would allow). Ethereum is actually a smart contract platform. CB Insights seems to suggest that the challenge here is getting the coding/developer contributions to make the software common and functional. That is, it remains a challenge to get the buy-in from software developers.
Clearing and Settlement – Again,thinking about the authentication/issuer dance for credit card transactions, the idea of the ledger being an error-correcting way to efficiently be open to multi-party activity seems natural to DLT, and clearing and settlement activity is probably a very natural and imminent target for DLT adoption. Adoption is potentially there for current providers of this activity. A big player is DTCC, Depository Trust and Clearing Corporation.
SteveV Thoughts on Fraud and Financial Services 