As Blockchain continues to rise, many people have asked me: What does blockchain mean to us? Will it disrupt the industry we are in? When and how should we respond to this new technology?
Many articles do a pretty good job explaining the Blockchain technology. However, for business leaders and decision-makers, especially those without a technical background. The definition, “Blockchain is a decentralized distributed ledger” and a few use cases only shows part of the whole picture.
So in this series of blogs, we will examine Blockchain from a unique and broader perspective. You won’t face any technical jargon or scary code, but you will understand Blockchain enough to assess its potential, make decisions, and capitalize on its applications.
This is the #1 blog in our series. Where we talk about the why & how is Blockchain disruptive.
First things first, why is Blockchain disruptive?
It wouldn’t be worth several blog posts to talk about a technology that is just a mere optimization tool. Blockchain is deemed disruptive because of its potential to change the fundamental structure of value creation.
On a high level, we can think of Blockchain as a self-sustained and change-resistant process that executes with certainty.
Let’s put the self-sustaining and change-resistant characteristics aside for now. We will first look at what certainty means in this context and how is it created.
Certainty is knowing what someone will do. Note that the “someone” doesn’t have to be human here.
To create certainty, we generally use a 2-step model:
- Establish a clear rule
- Execute on that rule
To give you an example, let’s say you want a coffee but don’t have time to make it yourself, you now have three options:
#1 Ask your friend to make it
#2 Get it from Starbucks
#3 Get it from the coffee machine
Because you watched a horror movie last night, you became a bit paranoid and started worrying about being poisoned.
How certain are you that you will be safe choosing between these three options?
#1 Undetermined, Depends on how you’ve treated your friends recently
#2 Medium, the company should have conduct policies preventing employees from poisoning customers, but stranger things have happened
#3 High, the machine is coded to not add poisonous ingredients
If we put these three options into our 2-step model, this is what we get.
We, humans, are prone to improvisation. Organizations try to standardize operations and product quality through guidelines, but uncertainty will always exist if humans are the ones who execute those policies. Machines create more certainty by executing pre-written codes (rules) line by line.
However, this is assuming that — the code executed by the machine is not malicious. In fact, two common situations exist that break this assumption:
- Internal intervention (e.g. owner)
- External intervention (e.g. hacker)
The owner may have been bribed and worked with a hacker to change the code of the machine.Now the machine starts making coffee with spoiled milk.
Blockchain adds one more step to prevent this situation
Blockchain enables this permanence by:
- Limiting human intervention (humans are bad, although sometimes unintentionally, in this case)
- Mandating rule-checks before each action
Think of it as a change-resistant, very stubborn machine that doesn’t listen to anyone with OCD tendencies that makes it confirm it follows the rules before every move.
But how does Blockchain accomplish this?
Imagine if a teenager asked you: “My parents are control freaks, how can I break free of their control?”
You’d probably say something like, “you need to become more independent and take care of yourself”
So the teenager took your advice, left home, and decided to make a living by selling coffee made with a secret recipe.
Since you don’t want the teenager to starve to death on the street, you continue to advise him on building his business, in a Socratic way.
- T (teenager): “If adults know there’s only a teenager behind the business, they are likely to discredit it. If the business is currently too small to get noticed, how can the business grow?”
- Y (you): “How about Franchising? Whoever is interested in it can invest in the business in exchange for its secret recipe, and start selling coffee in their neighbourhood.”
- T: “But the secret recipe is the core of the businesses success, how can we prevent it from being stolen or rewritten?”
- Y: “That’s easy. Let’s encode our recipe in an irreversible way, and ask those franchisees to compare their own copies with the rest before making the coffee.”
- T: “What if later on, we want to improve the secret recipe?”
- Y: “Well, we employ a democratic system, if half of the franchisees agree, we can update our recipe.”
- Y: “But what if some franchisee fail to follow the secret recipe?”
- T: “What are you talking about? Machines aren’t subject to human error.”
Yes. Replace the teenager with the application, franchisee with network participants, and the recipe with the shared records — you just helped build a Blockchain application that can run independently.
Of course, real blockchain applications are much more complicated, include other design features such as encryption, enable protection, and task distribution…but you get the idea.
What exactly is Blockchain disrupting here, though?
1. The creation and protection of certainty
It’s not trust. It’s not security.
Note that I do not mean to belittle the potential benefits of Blockchain, but to articulate the benefits. While certainty can enhance trust and security, I think it’s misleading to equate them.
The difference between certainty and trust is: Certainty is knowing what someone will do, while Trust is believing someone will do things in your interest, regardless of what he/she actually ends up doing.
Similarly, certainty leads to security only when the execution/rules we are certain about promoting security.
Let’s illustrate with an extreme example. If a Blockchain application used in banks was built on the rule “send out our client’s money to our CEO’s account”, we would be certain that the application would neither secure our wealth nor deserve our trust.
Clearly, this is one of the common causes that can destroy trust in a Blockchain.
2. The dynamic between the human and the machine
Not sure if you noticed it but in the previous Blockchain coffee business we built, something should’ve seemed weird.
- The machine does not require a specific server to host (it’s host by all the franchisees). Technically speaking, it can run forever, and independently without an owner.
- To protect itself from being hacked, the machine rewards participants (franchisees) for verifying the records…it’s similar to hiring some human bodyguards and workers.
- The consensus mechanism, where humans are going through a voting process to change the rules they are following, looks like a typical democracy with, hmmm, a bit role changing.
Don’t panic, the machine still depends on humans to run. However, the design of Blockchain prevents it from being subordinate to humans, hence preventing control and manipulation.
With that being said, there still exists ways to control Blockchain applications, even those categorized as public. We will cover those as we look at some vulnerabilities of Blockchain.
To wrap up
In short, the disruption of Blockchain stems from its self-sustaining and change-resistant process that it executes with certainty.
As a result, the certainty of a process will soon become a commodity that’s sold by the crowd through Blockchain, exchanged at a price that’s set by the market and brought out between individuals rather than corporations.
Hope this article helps you understand the idea behind blockchain and the broader implications of this new technology.
In the upcoming series, I’ll talk about what industries Blockchain can and cannot disrupt and when those disruptions are most likely to happen.
Instead of only giving you the answers, however, you will see my thought process leading to those answers, so that you can come up with the answers on your own.
Images from Pixabay and Gratisography.
Claire Liang is the person who drank too much coffee while writing this article. She led multiple tech startup projects, worked as a management consultant in Accenture and A.T. Kearney, and spoke at TEDx. | Find her on LinkedIn #ThinkwithClaire
Many thanks to our editor Paul Crognale, who edited this article with 100% votes from two participants.