Today we are able to participate in a global marketplace, but, as Nick Szabo, leading thinker on law, economics, and security and whose work inspired the creation of Bitcoin, points out, it is at the cost of huge numbers of “accountants, lawyers, regulators, and police, along with the increase in bureaucracy, risk, and stress that such institutions entail.” By outsourcing trust from expensive human traditional institutions to computation and the network effect, blockchain provides a more efficient means to achieve what Szabo has termed social scalability.
The first use case - payments
The most common use of blockchains today is in financial settings. Blockchain-based currencies, or “cryptocurrencies”, at their best are: neutral (i.e. not serving the goals of any institution or government), borderless, profoundly secure, immutable (the blockchain stores an unchangeable record of all transactions), and resistant to censorship. These properties eschew the need for middle-men such as central banks and clearing houses, saving cost, increasing the speed of transactions and reducing operational risk. This benefits many types of financial market participant, not least migrant workers that are faced with huge remittance fees to send money home to their families. And it makes cryptocurrencies like Bitcoin, which can’t be tampered with and has a fixed money supply, attractive to citizens at risk of inflation, as in Venezuela where inflation is currently 2,600%.
Applications of blockchain outside of the realm of payments are often criticised for being little more than glorified databases that could be replicated by existing technologies and legal contracts. The criticism misses the point. It is true that in most mainstream applications, blockchains provide only marginal improvements over existing solutions. But, as argued by Vitalik Buterin, founder of Ethereum, because these applications can benefit hundreds of millions of users, even if the average benefit per user may be small, the net benefit to society could be huge.
Supply chain transparency
Certain characteristics of blockchain technology appear to have great potential for supply chain transparency. UK-based company Provenance recently concluded a pilot programme that tracked fish sourced from traditional fishermen in Indonesia to high value sushi traders in Japan. The fishermen registered their catch on the blockchain by sending an SMS; from that point on, every step along the supply chain was recorded on the blockchain, creating a fully transparent chain of custody. Restaurants at the end of the chain could then scan a QR code or RFID tag to verify that the fish were caught legally and sustainably. Provenance is teaming up with some very major players in its next project to encourage tea farmers in Malawi to use more sustainable methods through the promise of cheaper finance.