People are having a hard time agreeing on just how useful blockchain technology is going to be. Skeptics look at it as a solution looking for a problem, and indeed the tendency of some people to want to throw everything on top of a blockchain can be overzealous. In many cases you then end up with two problems: The same one you started with, and how to make it work on a blockchain.

Most corporations running on public blockchains shouldn’t be

Widely misunderstood is the distinction between a private and a public blockchain. In the vast majority of cases there is no valid reason for a centralized company to be using a decentralized blockchain. Many do, because they launch an ICO using an ERC20 token (a custom token that anyone create that is then processed by Ethereum), and then they stay on Ethereum, which creates an enormous amount of friction for the customers of the companies who unnecessarily do this, as well as overloading the Ethereum blockchain itself.

The public Ethereum blockchain is limited to processing about 15 transactions per second globally, and each transaction has to be paid for. Unnecessarily using a widely distributed blockchain is wasteful of resources in terms computation power, electricity, and storage space, but because token holders are the ones that pay the fees for processing transactions, companies continue to do it. If you take a cursory look down coinmarketcap.com for centralized companies which are using ERC20 tokens you find many that do so for no benefit.

In general, the only companies who should be using the public Ethereum blockchain are those that need the decentralization features of it, in order to benefit the user.

Public blockchains do have killer use cases

Despite the fact that blockchains are little understood and often misused, there are some use cases that greatly benefit from a public blockchain. One of these use cases is making digital items unique.

By combining digital objects with a blockchain it’s now possible to create one-of-a-kind digital objects which cannot be replicated, and this has been difficult or impossible in the past. This has many uses, for example take the cult classic card game Magic The Gathering; this is a card game where you can buy a pack of cards from a retailer which contains semi-random cards, and there are monsters or spells on each card. Some of these cards are rare, and can be valued at $2000 or more.

If one were to attempt to recreate something like Magic The Gathering in digital form in the past the problem would have been that the cards could be relatively easily duplicated, and proving which one was the original would have been impossible. But now that blockchain technology is becoming more accessible it is now possible to make provably scarce digital objects which have a one hundred percent guarantee not only of authenticity, but proof of there only being a certain number in existence, and also a guarantee that the item will exist forever — independently of the individual or company that created it.

I recently interviewed company called Decentraland that has taken this a step further and created a virtual world on Ethereum, which can have games with scarce items inside of it, as well as being a testing ground for truly democratic voting taking place using a blockchain.

If a decentralized platform has people who are considered to be thought leaders leading it, then the same problems in having to trust third parties with your precious objects remain inherent just as if a normal corporation were running it.

To solve this issue most companies who have the goal to be truly decentralized aim to bootstrap the platform and then to remove themselves from it indefinitely. This is the case both for Decentraland, as well as another company I interviewed called Melonport, who are creating a decentralized platform for creating a hedge fund on a blockchain.

Tracking this is hard. Tracking it all on a single blockchain for the entire planet would transform the world.

Games simulating the real world: The same principles apply to physical supply chain tracking

The nice thing about solving problems of uniqueness, scarcity, and immutability in digital objects means that once a solution works it can be used for tracking the physical world as well. I previously mentioned that a Magic The Gathering card can sell for $2000. If people are willing to pay this kind of money for a card from a centralized company, and take on all of the risks that go along with that (for example the company going bankrupt, changing policies, issuing similar cards that devalue the rare ones, etc, or for a fraudulent company to start selling counterfeit copies of the card) then there will be vastly more value in items which are provably scarce. A public blockchain can provide this.

In simplified terms in public key cryptography, there are two elements: The public key, and the private key. You are able to digitally sign any arbitrary message with the private key, and anyone can verify that signature with your public key, which proves that you possess the private key. This allows you to prove that you are the owner of this private key without exposing it to anybody.

There is no reason that a physical object — such as a physical Magic The Gathering card, a house, or even an entire supply chain couldn’t be shipped alongside a blockchain transaction, so the purchaser would both receive the physical or digital item and a blockchain transaction which would give their private key ownership of the item, which the purchaser would then use to prove that the item is an original and is theirs. If the owner were to transfer the item to another person it could be done so alongside a blockchain transaction — allowing the receiver to be in possession of the new private key and thus proving its ownership and originality.

This could also act as a theft deterrent if the card and the private key were to be stored separately because the item would be provably stolen if the thief were not in possession of the private key. Solving the problem of tracking items uniquely with confidence that they are the originals is now possible for the first time, and it could be transformative.

Limiting networks to small clusters inhibits the ‘network effect’ where value increases as participants do

In the future everything will be on a public blockchain

In the early days of the internet a lot of corporations opted to use their own private intranets and some had good reasons for doing so, and eventually networks came out to interconnect intranets, and most things now just run on the internet in practice.

Blockchain is following the same path, with protocols for interconnecting blockchains becoming more prevalent, and with blockchain architectures appearing which aim to have instant transactions and low fees. The most prominent example of this is lightning network.

While the lightning network is bitcoin-centric at the moment, at its core it is really just a standard. In simplified terms it allows someone to lock up some bitcoin, and then send somebody else a part of that locked-up bitcoin, and the recipient then has the power to transmit that transaction to the blockchain, which would would lock it there forever.

The recipient may choose not to transmit it to the blockchain yet, and they can instead send their received bitcoin to a third person, effectively allowing a decentralized network to form which is truly peer to peer, but is ultimately settled on the blockchain. Avoiding on-chain transactions makes the transaction fees either free or extremely small, which is important for many use cases outside of monetary remittance.

If a public blockchain were to be used for supply chain tracking, if on-chain transaction fees were being paid, the pool of bitcoin that would being used for tracking would get smaller as it got lost to pay for transaction fees, which would clearly be unsustainable.

If a peer to peer network standard such as lightning or some other kind of network architecture where transactions could scale were to get paired with supply chain tracking, then it would become feasible to track physical objects on a mass scale.

This would be important because it would allow multiple different companies to track physical objects on the same neutral third party blockchain, and it would allow an item to be tracked all the way from its mining to manufacturing to delivery to the consumer. This could allow many different corporations to all share space on this same blockchain, which could potentially become the default standard for tracking all of the world’s physical, and perhaps digital, assets.

The value that such a blockchain would bring to society and its effects on the world would be significant. It could be the next digital giant corporation which dwarfs the likes of Facebook and Google, or given the potential for blockchain to be truly distributed and decentralized, it could be a neutral third party platform with distributed ownership which benefits many instead of a few.