“It’s not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”. — Adam Smith, The Wealth of Nations
Blockchain fulfills the most basic principle of capitalism, trust, to a degree that’s without equal to anything else we have today. Without trust, out entire economic system fails. If I can’t be assured that my payment will arrive to you untampered, I wouldn’t trade with you at all. This novel technology ensures the security of transactions by tying every single one together, such that braking, or hacking into a single block, will affect every other one in the chain —hence, a blockchain. In an era where hacks are putting a massive dent in the trust we have for institutions, blockchains democratize that trust and places it at the hands of every person interacting with it. It’s fitting paradox that, in the same way greed enables capitalism (by having people work for their own self-interest), blockchain enables it by relying on the fact that no one trusts one another. A sad state of affairs? Yes, but it’s a solution that works.
I won’t go into explaining the fundamentals of blockchain. There are numerous sources where you can find that out, such as here, here and here. Suffice to say, Mr. Nakamoto’s invention of Bitcoin did indeed change the world for the better, though not perhaps in delivering that much-awaited libertarian utopia. Bitcoin as a cryptocurrency is speculative at it’s best, “a fraud” at it’s worst (according to JPMorgan CEO Jamie Dimon). It’s fluctuating price is a rollercoaster that mirrors the same emotional moods as its investors: ecstasy, or perplexity. I don’t want to negate the validity of cryptocurrencies however. They do have it’s use and purpose, the same way you purchase tokens at a Chucky cheese to partake in the privileges of jumping into a ball pit, or eating a the pizza equivalent of a cholesterol bomb. Certain merchants would want the privacy to sell goods and services, away from the prying eyes of government. That’s all good! As long as they follow the laws of their state. My belief is that it’s underlying technology, blockchain will become the most important technology in the next decade —ahead of artificial intelligence and self-driving cars (unless Elon Musk lands on Mars in 2025 and starts a colony. A timeline which even he calls “aspirational.”)
The processing of transactions worldwide is the engine that drives the economic growth. Adam Smith recalls the necessity of trust between parties to exchange goods: “In a free trade, an effectual combination cannot be established but by the unanimous consent of every single trader, and it cannot last longer than every single trader continues of the same mind” (Book IV, Chapter VIII). This trust is essential before any transaction takes place. The rise of globalism has connected traders from every corner of the world to exchange every single kind of good imaginable. It allows me to drink this coffee right now from Guatemala, while eating bread with flour imported from Colombia and raisins from California, all the while I type this in a MacBook manufactured in China. Milton Friedman famously stated how not a single person on earth knows how to make make a pencil (a retail pencil). Someone had to cut the trees, another had to operate the machinery that stripped the trunk, another had to paint it, another had to market it, another had to take it to the retail location, and finally someone had to place it on the Wal-Mart shelf. Every single one of these transactions has to be recorded to ensure that it’s compliant and someone is not cooking the books. It’s a laborious process that takes days to do and mountains of paperwork. Blockchain eliminates the paperwork and cuts the transaction time in milliseconds.
It’s a tough competition, but blockchain technology could become an even larger player in the next coming years than artificial intelligence. Many companies are struggling to implement AI. Some have successfully applied it to their business (like Google and Amazon), but many, many more have failed to find a meaningful return on investment. It’s also no surprise: current AI training requires very large amounts of data in the first place. A data scientist (or a team) must then parse through the data and ensure it’s “cleaned.” Finally, it’s fed to the AI system and we’ll all hope that it will return a meaningfully low cost function to operate in production. However, all of these steps require time, investment of resources and most importantly, investment of talent. It’s a luxury that many companies cannot undertake. Now I won’t say that Blockchain is a piece of cake to implement, you’d have to install the software, connect it to the payment systems and educate the workforce, but the returns can be immediately experienced: faster processing times, increased security and better transparency.
In economics, there are three ways to be the top player in a market: be first, be best or be the only one (a monopoly). The mavericks have jumped on the blockchain ship and the rest of the world is playing catch up. It’s up to companies now to decide whether to join in, or let the sharks (i.e greedy hackers demanding ransoms in Bitcoin) encircle the less protected ones. It’s a rainy day as I write this, and I’m comfortable going to bed tonight knowing what kind of world awaits for me tomorrow. Which one will you decide to have? One that runs on cryptocurrencies, or one that’s demanding you money through a cryptocurrency?