Setting the Stage

Someone recently asked me: “As an average user, how does this new technology benefit me?”

Clearly, the financial system works acceptably for many in the developed world today. To find out why change is on the menu, we can look for opportunities to improve how sausage is made in the factory, while also imagining how different tools might position us for a better meal in the future.

While blockchain technology is fascinating technical design and food for the techie spirit, it’s challenging to convey why bitcoin is truly significant, because its effects are naturally imagined in the context of existing limitations.

Money might make the world go round, but it needs a vehicle to do so:

Signing an agreement or contract

Notarizing a document

Issuing purchase orders

Paying a bill or an invoice

Initiating an online or in-store transaction

Transferring assets, property or real estate

Trading and settling securities and commodities

Enforcing contract clauses or issuing a customer invoice

While these do hobble about relatively smoothly, there are pain points:

Robots can’t open bank accounts Legacy financial processes have plenty of inefficient manual and physical/paper touchpoints, both at initiation time and during back-end processing. To the extent legacy processes are automated, this is done via proprietary and non-interoperable technological silos, which only vetted participants are allowed to access. This limitation is largely driven by security concerns, since broader accessibility might allow someone to override data in a financial instrument, and the system would be none the wiser. Markets and transaction types are constrained to those which are viable in the current technologically siloed, largely human-orchestrated system. There are individual market silos for almost every viable thing, but not a federated “mega market” for everything (the closest we have are the centralized Amazon and eBay models, however the decentralized OpenBazaar experiment is just beginning).

At first glance it may appear that bitcoin, while making for a better and more practical form of currency, doesn’t really bring anything new to the table.

We might therefore expect relatively quick saturation of the limited pool of consumers who care enough about its advantages to invest the effort to understand something new and different.

Plus, most are eager to earn a partial rebate of the fees charged by their plastic, and are conditioned against using currency as a savings vehicle.

Rather than believe in mass consumer adoption through a new payment system for sandwiches or a new store of value for savings, we must look beyond such consumer-driven propositions if an adoption tipping point will ever be reached.

If something will actually fuel mass adoption, it must provide true and significant value to consumers, but do so indirectly at first. This leaves us with either streamlining of existing models or emergence of newly viable models of market interaction.