The author is the Director & Co-Founder at Idein Ventures
Blockchain is a technology which uses a chain of blocks to execute any form of transfer of any asset using decentralisation of the process of tracking and execution. And it has started to capture the attention of investors around the world. This article deep dives into this concept which a number of people claim to understand but not really do.
Simplified Introduction to Blockchain
In the past, when it came to transacting money or anything of value, people and firms rely too much on intermediaries like governments, banks or any other institution to maintain trust. These intermediaries play a very important role to establish trust and authentication and also for keeping the record of the numerous transactions.The role of intermediaries becomes very necessary when it comes to digital transactions. Because digital assets like money, stocks & intellectual property, are essentially files, they are incredibly easy to reproduce.
To explain it in a more layman way, let’s get back to the basics of internet.
In 1970s, the seed of internet was sown through the advent of electronic mail. Electronic mail worked in a fashion where transfer of asset (data) happened from one place to another through a copy-paste fashion. But such form of transfer cannot be applied to a number of other transactions where movement of asset is needed and not just copy-paste. So such transactions, such as financial transactions, when became digital, continued to remain dependent on centralised agencies. After all, there was no way to ensure transactions directly between point A to point B, in cases where such transactions need to be monitored.
With Blockchain, trust and monitoring of a transaction can be taken away from the hands of a centralised agency and given to millions of users like us, thus completely decentralising the process of monitoring (in some instances of blockchain, complete decentralisation can be avoided and such decentralisation can be restricted to the parties involved, but can still be trustworthy due to the encryption of the process and auditability of the same). So now, movement of assets can happen from point A to point B and it may not need a regulator in the middle.
Public Blockchain: Think of it as the “Wikipedia for Ledgers” in a typical “X for Y” model of definition but much more secure and encrypted. In simple terms all the transactions that happen through a public blockchain are public and can be seen by everyone but are also secured at the same time. Public blockchains are a tad slow and require greater use of electricity and thus greater costs as compared to its private counterpart. However the positive is that it is greatly efficient in terms of speed and money than the accounting methods in use currently
Private Blockchain: Think of it as the secure and encrypted “restricted” Wikipedia for Ledgers in a typical “X for Y” model of definition. This type of blockchain partially brings in the intermediary role back into the transactions. The company who handles the blockchain can write and verify all the transactions. This type of blockchain is more suitable for traditional businesses and governance model. This also ensures greater speeds and connectivity. Please note that these definitions are over-simplified for the sake of clarity in explanation.
Blockchain and Bitcoin: What is the difference?
Many get confused about the relation between blockchain and bitcoin. To clear those doubts; The term bitcoin first appeared in 2008 when ‘Satoshi Nakamoto’ introduced a way of digital peer to peer transaction which could have been done without the use of an intermediary. After the idea became popular it was found that the technology that made this revolutionizing idea possible was even more wonderful. This technology is today what we call as blockchain.
To simplify: Internet : Email :: Blockchain : Bitcoin.
Bitcoin is just one of the applications of blockchain.
Future of Blockchain- Next 30 years
Foundation Technology vs Disruptive Technology
It’s important to understand the kind of technology blockchain is, to predict how future is going to treat it as. When ecommerce was initiated, it brought disruption in the way goods were bought and sold. But when email was developed, it created a new foundation of something much bigger, of which ecommerce is just a part.
Blockchain is a foundation technology- the kind of technology based on which various disruptive technologies are developed. And foundation technology is never a fad or a bubble- it is something which keeps on getting developed for decades. Same will happen with blockchain.
First 5 years: The initial years of blockchain will see a number of companies claiming to do blockchain, and using blockchain to replace stuffs which never needed replacement. But in the clutter of such useless companies, there will be a few who will make some real changes to the world and economy using blockchain. Companies like Idein Ventures are in the lookout for those few because these few are the ones which will grow at 10-20X rate.
Next 5-10 years: By now, it would have become a much more prominent and well accepted word. And we will start seeing a number of blockchain developers. This will be the time when companies will come out of compromised blockchain (where blockchain is just a small component of a much bigger technology containing many other features) and start using blockchain for what it was supposed to be.
Next 5-10 years: Hopefully this will be the period when there will be lot of disruption based on the foundation on blockchain.
Next 10-20 years: This becomes too hard to predict :).
Immediate Use Cases of Blockchain
There are many use cases of the tech right now- hundreds of them. Here are some examples of some cases which are already in use.
- Cryptocurrency: Bitcoin and Ethereum are examples
- Insurance: Think of areas where there is lot of documentation and many middlemen, with the need of trust and encryption, and you will find a use case for blockchain. Insurance is one such case.
- Health Records Digitisation
- Supply Chain across domains
- P2P e-Commerce
- Data and document verification
Future Benefits of Blockchain
Blockchain has many use cases in future, which is unthinkable at the moment, but will build further on other use cases already mentioned above. A lot needs to be seen on how much of this will actually happen
- Replacement of all ecommerce, Uber-style, Airbnb-style platforms
- Direct application by federal banks which issue currencies for the country (eg RBI)- controlled decentralisation of their currency and bringing their currency over blockchain
- Medical treatments using blockchain- when blockchain is combined with AI, medical treatments (at least first level treatments) can become more reliable in an online environment.
All of the above will directly compete with power players and hence can be executed only if power players want the same to happen.
So who is interested?
Companies like Idein Ventures see the formation of a pattern that re-defines existing norms and ideas, with the advent of blockchain. And that’s why global private equity firms that can influence global policies, shall be interested in a company that’s built on blockchain, because such firms truly support democratisation and redefines globalisation.