Trust and authority are the two basic tenants needed for a society to function and for its members to interact together within its units. Sovereign and commercial institutions have always held a monopoly on those two tenants, either by force or by consensus at the insistence of society members themselves.
Chaos will ensue if law enforcement and the judicial system do not have an absolute monopoly on the power to enforce and execute judgments within a society. Another less apparent monopoly is that which social media networks have on its community of users.
Facebook, the most popular example, has a consensual monopoly over the data of 1.71 billion active users (as of the second quarter of 2016), according to Statista.com.
The “free access” to its social platform comes at a cost paid by users in the form of precious data, the intrinsic value of which the network has successfully monetized, resulting in a market capitalization of $372.1, as of November 1, 2016.
Such monopolistic arrangements between society and its institutions are by no means ideal as it almost always gives organizations the advantage of power over the individual.
The ubiquity of information has, however, agitated the world. Thus, the many traditional ways of transacting that we take for granted are being swiftly disrupted.
A good example of that is the new “gig” and “sharing” economy, which is expected to grow from $15 billion in 2015 to $335 by the year 2025, according to a report by PriceWaterhouseCoopers.
Airbnb, founded in 2008, is a notable player in the sharing economy. The company provides a platform for property owners and visitors to agree and transact short term rental contracts. While it does not own rental properties, Airbnb today has over 2 million listings in 34 thousand cities in 191 countries, generating an annual revenue of over $1 billion with a market value of $24 billion.
The meteoric rise in popularity of companies like Uber and Airbnb, and the discrepancy in valuations between them and traditional enterprises in the same sectors, highlights the readiness of the global consumer and independent service provider to depart from the old model of doing business, center to which is a monopoly over the transaction process.
The new way of the sharing economy Mavericks seemed to be taking over the business world until the recent arrival of what many futurists are calling the “Ultimate Disrupter,” the Blockchain technology.
What is Blockchain?
Blockchain is an innovative technology that facilitates true peer-to-peer transactions. Its execution is assured, recorded, and verified by a decentralized ledger that itself, gets secured by cryptographic hash codes. Each set of operations gets digitally recorded in blocks of data created every 10 minutes, which is then irreversibly sealed with a random and unique set of code called a “hash,” and it has a dual purpose. First, it is to ensure that the data block is securely sealed and the transaction data within it is permanent. Second, the block hash makes up the first transaction in the subsequent block of transactions and acts as a link or a “chain” between the blocks, hence the name Blockchain.
The technology is revolutionary because it enables data creators to track and quantify with absolute certainty the usage of that data, which allows them to demand a share of the multi-billion dollar revenue that is now going entirely to the aggregators of that data, i.e. the companies.
The same idea applies to songs, where artists now can sell their music directly to consumers without the need to go through traditional record companies and digital distribution channels such as iTunes and Spotify who keep most of the revenue simply because of the monopoly they have on the transaction process.
Banks are also at risk of becoming irrelevant as their role of being centralized ledger keepers and transaction facilitators will diminish as both functions can be done cheaply and more securely using blockchain technology.
Blockchain and Cryptocurrencies
Bitcoin (BTC), the poster child of Blockchain technology and the most famous of the over 100 cryptocurrencies out in the market, has experienced phenomenal success since its launch in 2008. In February 2010, each BTC was valued at $0.01, today’s price is $714 (Price as of November 2, 2016), taking the BTC market cap to $11.54 billion more than the annual GDP of Mongolia.
The first “real world” BTC transaction occurred in May 2010 when Laszlo Hanyecz, one of the cryptocurrency’s first adopters wanted to test uptake readiness of BTC in the real world. Laszlo offered 10,000 BTC, valued at $30 at the time, for two Papa John’s pizzas. To his surprise, someone in London accepted his offer. Today’s value of the 10,000 BTC paid for those two pizzas is $7.15 million.
This tremendous appreciation in BTC price is a testament of the readiness of the masses to break free from the grips of traditional transactional monopolies, more importantly, represents a strong vote of confidence and satisfaction with the performance of the Blockchain technology.
Governments are adopting Blockchain technology as well, with the Emirate of Dubai announcing its strategy to shift all transactions to Blockchain by 2020 and in the process save 25 million work hours annually, according to a report by Gulf News.
Abu Dhabi Securities Exchange (ADX) launched Blockchain for e-voting in a sign of adoption even by the commercial and financial industry. Moreover, U.S. Federal Reserve Chairman Janet Yellen said during an appearance before the House of Representative in Sept, that “Blockchain could have very significant implications for the payments system and the conduct of business.”
There is a confluence of factors resulting in the rapid adoption of the Blockchain. However, the primary factor that will get it to the tipping point is its ability to empower individuals by giving them back undisputed ownership of the data they create and choice of to what to do with it.
Amro Zakaria Abdu is a global markets’ consultant with 15 years of experience in the financial service sector. He is a certified trainer Market Trader Academy USA.