Blockhain is a revolutionary technology that is poised to transform everything we know about life and work. Blockchain is the most disruptive technology since the internet, and many experts believe it will actually be more disruptive to the internet. Corporations need to start seriously addressing, preparing, and planning for a world where blockhain technology serves as the core backbone behind customer transactions, value exchanges, and organizational structure.
I am going to spend a few posts discussion blockchain and its implications. In this post, I will cover blockchain from a high-level overview and then delve into what this means for businesses.
It’s impossible to talk about blockchain technology without first discussing the role of bitcoin in its development. Satoshi Nakamoto, the inventor of bitcoin, invented the blockchain technology that serves as the crypto-currency’s backbone. Nakamoto wanted to create a currency that no one person or organization had control over. In the aftermath of the 2008 financial crisis, he believed banks and financial institutions were the key problem. Thus, creating a currency that no one (not even himself) had control over that was completely independent of central banks was a key part in moving the world away from what he saw as the destructive power of these banks.
Bitcoin’s blockchain has always been maintained by volunteers. Across the world, thousands of computers are always hooked into the bitcoin blockchain. These volunteers link up their computers to the bitcoin blockchain (these computers are called “nodes”) and are incentivized by small payouts (currently 12 bitcoin) that get paid to the first computer that can solve a complex puzzle. These puzzles are designed to take approximately 10 minutes to solve. Once a puzzle is solved, all of the transactions since the previous solution are collected together in what’s called a “block” and distributed across the network, being linked to the previous blocks before it. This chain of blocks is the blockchain.
The blockchain is a distributed ledger of transactions. To oversimplify it, think of the ledger as being like your bank statements. It bears a record of transactions in a centralized location. Unlike your bank statement, however, the blockchain ledger is public and available to everyone. That is, every single person can look up every other person’s transactions. Privacy is maintained via each account number being a long, random series of characters. If you know the right string of characters to search for, you can technically search for all transactions on that account. But that particular string of numbers is only visible to the account holder, which is the basis for the account privacy. In addition, the distribution of the ledger among the entire system means that no single person controls it. This increases the security of the ledger, making it a single source of truth that is impossible (given today’s computing methods) to edit, modify, or manipulate. We’ll discuss this in more detail in a future post.
The promise of blockchain technology is a world where middlemen are eliminated and value can pass from the producer to the consumer. This has the potential to transform everything we know about business and financial institutions today. Investment bankers, hedge fund managers, and other traditionally lucrative jobs will be the hardest hit. However, the implications of blockchain will touch every area of corporate lives.
Below are 5 implications of this blockchain technology on business.
Companies that Maximize Value-Creation will Succeed
Blockchain technology will refocus companies on value creation. While every company in the world creates value in some way, some do so more directly than others. Those companies that ruthlessly eliminate non-value activities and empower their front-line value creators to solve customers’ problems will be poised to take advantage of the blockchain revolution.
To prepare for this companies should begin by immediately reviewing all of their processes and procedures and taking the corporate axe to anything they cannot charge the customer for directly. This may involve solving current workplace activities with automation or simply choosing not to perform the prior non-value work. The vast majority of companies in the world today have massive amounts of waste and inefficiencies. By focusing on eliminating these and creating lean processes now, companies will free up their resources to focus on their core value proposition to their customers. Those that do this the best will be rewarded in the blockchain-based economy.
Corporate Middlemen will Suffer the Most
While corporate middlemen will still exist, they will not be as financially lucrative as they were during the last century. Distributors and companies that exist to facilitate transactions (while not creating value in and of themselves) will still have a place. But their role is going to be vastly different than it is today. Likely, many of these functions will be replaced by machine-learning computer algorithms that can resolve complex supply chain problems with little to no intervention by humans. These companies will likely look much more like complicated tech platforms than the corporate behemoths they are today. Those companies that make transactions the most seamless between true value creators and consumers will remain profitable, but the rest will vanish into corporate bankruptcy. This will include many of the biggest household names and big-box stores out there today.
Export/Import Currency Advantages will Disappear
Since the 1970s we’ve lived in a strange age of currency fluctuations, where currency values float freely and are not pegged to anything. Foreign currency exchange markets have become a massive business and the fluctuations in currency values have become a major source of competitive advantage for some economies. With all of this, it’s easy to forget just how recent of an invention this is. Gold and silver were the primary units of value exchange in the old economic order. Currencies were backed by set amounts of gold and silver held by countries. With the treaty of Bretton Woods, all currencies became backed by the US dollar which was in turn backed by gold (a fact made possible by the US having 80% of the gold reserves following World War II).
When Nixon removed the world’s currencies from being backed by the US dollar, central banks were free to print as much money as they saw fit. This resulted in a variety of strange implications, including the hyper-inflation witnessed in South America. Some countries found that by devaluing their currencies their exports traded more favorably internationally. These countries that sought this currency devaluation as an edge in manufacturing and production gained an edge on Europe and the United States, both of whom have had very strong currencies during that time.
What blockchain technology is poised to do is to level the currency playing field and consolidate all value into a single currency. This is what renowned economist John Maynard Keynes wanted at the treaty of Bretton Woods (a proposal that fell apart due to logistical and control issues). Value creators will at last have a stable and universally agreed upon currency with which to exchange value. This is going to severely negatively effect countries whose export business is a key source of revenue. But at the same time, many of these countries are the same value creators that are poised to benefit, so these negative effects will likely not be universally bad for today’s manufacturing behemoths.
The “Good Jobs” of Yesterday Will be the “Bad Jobs” of Tomorrow
Hedge fund managers have had a good run in the last hundred years, so we will use them as an example to illustrate this point. While hedge fund managers are already under a vicious assault from low-cost index funds such as Vanguard, this is a profession that is perfectly poised to be reduced and/or eliminated with the combined forces of automation and blockchain technology.
Hedge fund managers do not necessarily create value in and of themselves. They are middlemen between investors and stock markets, serving to manage portfolios and maximize returns (while doing their best to minimize losses and manage risk). In doing, they do create value—but it’s not direct value. Because they do not create value themselves, the future blockchain economy will likely eliminate the need for the hedge fund manager, as the exchange of value can occur between complex algorithms, the blockchain, and the individual investor. This is great news for investors—terrible news if you’re a hedge fund manager accustomed to pulling a healthy six or seven figure salary.
Because the blockchain will be so ruthlessly devoted to value, C-suite jobs will also be impacted negatively. Most c-level executives are intermediaries between different parts of their respective organizations. With customer value creation becoming paramount, wages for front-line workers who are excellent at creating value will increase. The compensation for the corporate orchestration of these workers, however, is not likely to increase at the same rate. There may be exceptions for individual executives who create revolutionary forms of value, but these will prove the exception and not the rule.
Self-Organized Contract Employment Will be the New Standard
Jobs of the future will work a lot like being an Uber driver. Uber drivers are independent contractors who get paid when they show up and do work. Uber is the intermediary that connects the work with the worker. This sort of setup works perfectly with future blockchain employment and will become the new standard in 10-20 years. (However, because Uber is itself an intermediary, the blockchain employment revolution will actually weaken the influence of the corporation serving as that intermediary and will increase the power of the workers.)
On the one hand many may view independent contract-based employment as a negative thing, given that Uber’s history with its drivers is fraught with tension, but if this is properly executed it can actually be a huge advantage to employees, offering them enhanced control over their income and the ability to capture more of the value they create. Karl Marx saw the primary evil of capitalism as being the exploitation of the workers, as all workers do not receive the full value they create as compensation. In a strange way, this self-organized contract employment model has the chance to resolve most of Marx’s complaint, as workers will be able to be paid directly and capture the majority of the value they create in the form of a crypto-currency payment.
If properly executed and supported by social institutions, employment in a blockchain world has the potential to correct many of the negative impacts wrought on workers since the industrial revolution. However, it’s likely that all workers will experience discomforts along this process. Especially here in the United States, where employer-sponsored health insurance accounts for the majority of healthcare access, the rise of independent contractors will initially hurt the worker, while likely being better in the long-run once the underlying social institutions (healthcare in this case) catch up to the new economy.
This is a brief introduction to just a few of the implications that blockchain technology will have on our businesses. The reduction and/or elimination of middle-men in value creation will likely result in a significant amount of societal upheaval. The companies poised to capture and win the most value from this new exchange will be those most willing to embrace this new technology, despite the fact that it will likely have negative financial implications in terms of profitability in the short-term. Those companies that become early adopters will receive the majority of the benefit, allowing them to shift their business models to compete in the new blockchain-fueled economy.