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The Promise of Blockchain Is a

The Promise of Blockchain Is a World Without Middlemen

World Without Middlemen

by Vinay Gupta
MARCH 06, 2017

The blockchain is a revolution that builds on another technical revolution so old that only the more
experienced among us remember it: the invention of the database. First created at IBM in 1970, the
importance of these relational databases to our everyday lives today cannot be overstated. Literally
every aspect of our civilization is now dependent on this abstraction for storing and retrieving data.
And now the blockchain is about to revolutionize databases, which will in turn revolutionize
literally every aspect of our civilization.

The database
Promise model stood
of Blockchain unchanged
Is a World until about 10 years ago, when the blockchain came into
Without Middlemen
this conservative space with a radical new proposition: What if your database worked like a network
a network thats shared with everybody in the world, where anyone and anything can connect to

Blockchain experts call this decentralization. Decentralization oers the promise of nearly
friction-free cooperation between members of complex networks that can add value to each other
by enabling collaboration without central authorities and middle men.

Lets start by examiningthepotential eects of

How Blockchain Works thison an industry that touches all of our lives

Here are ve basic principles underlying banking. The banking industry is lled with
the technology. shared resources. Consider ATM machines: each
machine is owned by a single institution, but
1. Distributed Database
Each party on a blockchain has access to accepts cards from a huge network. This sharing
the entire database and its complete requires a complicated management apparatus,
history. No single party controls the data
mostly provided by VISA. That central entity
or the information. Every party can verify
the records of its transaction partners owns the database and transaction processing
directly, without an intermediary. layer, which makes everything else possible. If the
process of using an ATM had been invented today,
2. Peer-to-Peer Transmission
Communication occurs directly between with the blockchain as a state-of-the-art database
peers instead of through a central node. technology as an option, we would most likely
Each node stores and forwards
notneed an administrative entity like VISA to
information to all other nodes.
manage the process. Instead, the technology itself
3. Transparency with Pseudonymity would do the heavy lifting of uniting the interests
Every transaction and its associated value
and business processes of the member banks. One
are visible to anyone with access to the
system. Each node, or user, on a can easily imagine a single global blockchain
blockchain has a unique 30-plus-character network for managing the interoperability of bank
alphanumeric address that identies it.
cards. Rather than creating hub-and-spoke
Users can choose to remain anonymous or
provide proof of their identity to others. methods for organizing our shared resources for
Transactions occur between blockchain
mutual advantage, this new technology would
provide solutions without any central oversight.
4. Irreversibility of Records
Once a transaction is entered in the
The database
Promise of and
Blockchain Is a World
the accounts areWithout Middlemen In a world without middle men, things get more
the records cannot be altered, because ecient in unexpected ways. A 1% transaction
theyre linked to every transaction record fee may not seem like much, but down a 15-step
that came before them (hence the term
supply chain, it adds up. These kinds of little
chain). Various computational
algorithms and approaches are deployed frictions add just enough drag on the global
to ensure that the recording on the economy that were forced to stick with short
database is permanent, chronologically
supply chains and deals done by the container
ordered, and available to all others on the
network. load, because its simply too inecient to have
more links in the supply chain and to work with
5. Computational Logic
smaller transactions. The decentralization that
The digital nature of the ledger means that
blockchain transactions can be tied to blockchain provides would change that, which
computational logic and in essence could have huge possible impacts for economies
programmed. So users can set up
in the developing world. Any transformation
algorithms and rules that automatically
trigger transactions between nodes. which helps small businesses compete with giants
will have major global eects.

Blockchains support the formation of more

complex value networks than can otherwise be supported. Normally, transaction costs and other
sources of friction associated with having more vendors keeps the number of partners in a value
network small. But if locating and locking in partners becomes easier, more comprehensive value
networks can become protable, even for quite small transactions.

INSIGHT CENTER Consider the problem that small manufacturers

have dealing with giants like Wal-Mart. To keep
Business in the Era of Blockchain
transaction costs and the costs of carrying each
product line down, large companies generally
How technology is transforming transactions.
only buy from companies that can service a
substantial percentage of their customers. But if
the cost of carrying a new product was tiny, a
much larger number of small manufacturers might be included in the value network. Amazon
carries this approach a long way, with enormous numbers of small vendors selling through the same
platform, but the idea carried to its limit is eBay and Craigslist, which bring business right down to
the individual level. While its hard to imagine a Wal-Mart with the diversity of products oered by
Amazon orof
The Promise even eBay, that
Blockchain is theWithout
Is a World kind ofMiddlemen
future we are moving into.

As we outline in The Internet of Agreements, our paper for the World Government Summit in
Dubai, the incidental complexity involved in business operations could go down by a very large
factor, into a domain where a much more complex, contingent and interwoven business
environment will emerge. Such an environment might be as dierent from todays business
environment as container shipping is superior to packing boats by hand. (Disclosure: Im the
founder of Hexayurt.Capital, a fund which invests in creating the Internet of Agreements.)

For example, imagine the overhead involved in renting temporary furnishings for a house. Right
now, this is not a very common practice (particularly for short stays) because of the overhead
involved insurance of each rented item, dozens of vendors, coordination costs getting everything
in and out and so on. But if those transactions came down in cost by 90%, it is easy to imagine sites
like AirBnB starting to oer custom furniture options in the spaces people are renting. Add robot
delivery trucks to that future, and even short stay homes might have custom furnishing options.
Making the kind of logistical complexity that is common to (say) theatre productions or aircraft
maintenance accessible for smaller events like weddings is just one area where falling transaction
costs open up new kinds of business as complex value networks integrate to oer services that
simple value networks cannot.

Were going to see the potential for a trajectory of radical change in all industries.As a society, were
experiencing a time of unprecedented technological change. It can feel like an insurmountable
challenge for leaders to stay on course in such rapidly changing tides. And yet, with each passing
generation, we are acquiring more skill and expertise in navigating a high rate of change, and it is to
that expertise that we must now look as the blockchain space unfolds, blossoms, and changes our
Vinay Gupta is the founder of Hexayurt.Capital, a fund which invests in creating the Internet of Agreements. He was
instrumental in creating the Dubai Blockchain Strategy, project managed the Ethereum blockchain platform release, and
invented the hexayurt refugee shelter. His areas of expertise include disaster management, energy policy, and computer

The Promise of Blockchain Is a World Without Middlemen

This article is about INFORMATION & TECHNOLOGY



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