Blockchain. Bitcoin. Cryptocurrency (or “crypto,” if you prefer). This guy:
Is it all hype? Is blockchain technology really going to change the world? Is cryptocurrency valuable?
Yes, yes, and yes.
It’s all hype now but cryptocurrency will really change the way the world works. We’re only scratching the surface of blockchain and it seems most people don’t realize the fundamental value of the technology:
You can decentralize anything without sacrificing control.
With cryptocurrency, you can guarantee everybody will follow the same rules in the same way all the time. The rules are baked into the system. When you do business with people who use the same cryptocurrency, you will always get the result you expect. If you don’t like the rules, you can choose a different cryptocurrency.
This has tremendous implications for everything but it solves a big, important problem with sending money: you need somebody to vouch for it. You need somebody to assure you that your cash is real, authentic, and worth what you say it is. You need somebody to guarantee that you have the authority to use it.
Sometimes, that “somebody” charges fees, defrauds you, lies to you, steals from you, colludes against you, takes your sensitive personal information, or arbitrarily changes the terms of your transaction. In well-regulated economies with sound government and responsible financial policy, this doesn’t happen much and isn’t a huge problem, it’s more of a risk and occasional failure (but when it fails, it’s a big deal). In poorly-regulated economies with shoddy government and bad financial policies, this causes corruption, misery, and distrust.
Cryptocurrency eliminates this problem. Tokens ensure everybody follows the same rules and blockchain guarantees transactions will go through exactly as you intend, with none of the risks noted above. You no longer need to rely on government decrees, local regulations, or the good faith of strangers. Blockchain does that for you, with cryptocurrency to settle the deal. You can safely transact with millions of people who you have never met, with whom you have no relationship, who live in a country with different laws and regulations.
So what? Who cares? My money works well enough.
Good point. Noted. Many agree with you.
Right now, the big feature people are latching onto is the “one universal record” that blockchain enables. This has implications for international shipping, law enforcement, and healthcare, and any industry that spends a lot of money tracking the movement of documents and things. You can now let anybody handle any document with certainty that the document will not be forged, records will not be lost, and ownership will change hands only when the system allows. If everybody loses contact, they all know they have a legitimate, authentic record of what’s going on and a way to ensure that when they reconnect, everything’s in order. That’s a big deal.
But I suspect the “killer app” will come from cryptocurrency.
For example, a YouTuber moves to DTube and now has an easy way to reward followers, generate income, and build a brand across all platforms that run on the Steem blockchain; a first-time homebuyer sells microshares of his future house to collect cash for a down-payment; commuters join a car-share ecosystem where participants buy and sell riding tokens as needed to get/give rides.
People won’t do these things because cryptocurrency is better than their local currency or some business they already use. They’ll do it because cryptocurrency is easier (or possibly, the only way to do it). Somebody creates a token, assigns rules for how people use it, distributes it to a bunch of people, and lets the market evolve. If that token is better than cash for doing the things you want to do, you’ll use it.
Maybe you’ll like it so much that you’ll start a businesses that uses this cryptocurrency. In return, you’ll no longer have to spend ungodly amounts of money and time verifying information; the blockchain assures you that everybody has the same information. You’ll no longer have to put inordinate amounts of time and effort enforcing the rules; the blockchain assures you that everybody follows the same rules. You’ll no longer have to rely on a self-interested third-party to vouch for movements of information, money, or property; the blockchain assures you that everybody owns what they have with record of how that “stuff” moves. You’ll never have to hound people to pay their invoices; transactions settle immediately or not at all.
Ok, fine, whatever. Why did you say it’s all hype?
Because it can’t compete with conventional systems and hasn’t resulted in many products that people use. This is changing—STEEM‘s platforms have 50,000 active daily users, DENT has 5 million users, Brave browser is running on over 3 million devices, several large businesses are using Factom’s protocol, IBM uses XLM as payment bridge for its blockchain-as-a-service offering…other cryptocurrencies provide other real-life products people use. Not to mention blockchain implementations like MetLife’s Vitana, IBM/Maersk’s TradeLens, Walimai’s Tael, Ernst & Young’s Zero-Knowledge Proof on Ethereum.
But it will take a while for the technology to develop and for people to find new and novel applications. We’re on the cusp of that with international remittances, not quite there.
(Remittances are low-hanging fruit. Sending money internationally is a nightmare and ridiculously expensive. You have transaction costs, settlement risks, geopolitical risks, sometimes your recipient needs to pay a bribe to get their money, and you can never be sure the amount you send will be worth what the receiver gets. Plus, it takes 3–5 days for the money to arrive. With blockchain, you can do this instantly at far less cost. E.g., Ripple claims to save financial institutions 40–70 percent. I’m not singling out Ripple or shilling its token, XRP. Many cryptocurrencies can do what XRP can do, and Ripple has a lot of competition for blockchain as a service.)
It’ll be interesting to see how these early ventures play out, but change always starts with low-hanging fruit. Mundane things that solve problems but don’t require creativity or novel thinking. Blockchain is a transformational technology, by which I mean, it replaces the status quo but does not improve on the status quo. These types of technologies are usually extremely valuable “paradigm shifters” that start out with really mundane, underwhelming applications.
For example, I’ll pick three transformational technologies—internet, electrical power, and microprocessors.
When the internet came out, businesses built intranets. When electricity came out, businesses installed light bulbs. When microprocessors came out, businesses replaced their mainframes with desktop computers.
It wasn’t until new businesses built these technologies into their core structure that the true transformations happened (respectively):
- Ecommerce and e-communication
- Power plants and electronics
- Home offices and personal computers
Only then did people see the transformational potential of these technologies (respectively):
- Free, instant connections between buyers and sellers without intermediaries.
- Power you could distribute to anything connected by wires.
- High-quality computing programs individuals could buy and use.
It takes time. Hype comes first, then people commit to the technology, then these committed few create real-life products that solve problems, then people use those products, then creative people figure out ways to make those products better. Slowly, life changes. And then comes along a new generation that has no idea what life was like without the technology, and wonder how on earth anybody today could’ve thought it was just hype.
I would advise you to read the excellent and concise Quora answer from Phillip Remaker, along with his chart:
As you can see, blockchain solves a different problem than conventional technology. That’s where the value lies. If you’re handling data that gets updated a lot by people who don’t know or trust each other, blockchain lets you do that without the risks, costs, and complexity of a clearinghouse or third-party.
Ok, but that’s blockchain not cryptocurrency.
Yes, true. I suspect cryptocurrency will end up the biggest and most valuable implementation of blockchain. Can you imagine how cryptocurrency will revolutionize energy markets? The world wastes hundreds of billions of dollars worth of energy. Some places produce more than they need while other places face chronic shortages. Creating a secondary market for unused or surplus energy will unlock untold economic value, but that’s a massively complicated, costly endeavor using conventional means. Cryptocurrency makes it much easier. Not easy, but easier.
Cryptocurrency helps people do something they love to do: exchange things with each other. We’ve been doing it for a hundred thousand years. Trading things makes us happier. It helps us get the things we want. It helps us live better, more enjoyable lives. It helps us make friends. It helps us build social networks. It helps us build institutions. It helps us build a better world.
Is cryptocurrency hype? Yes. It’s also potential. Massive potential.
Sometimes it’s ok to get hyped.
Also published on Medium.