Why Does Blockchain Matter?
People often ask why blockchain matters beside the ups and downs. We unveiled the reason why in this blog.
Indoctrinating, I mean converting, I mean brainwashing, errr I mean explaining blockchain to the uninitiated is no easy task. Things get technical real quick. In fact, a lot of blockchain enthusiasts probably can’t even explain the exact value of the underlying technology.
Of course ‘number go up’ is a very compelling argument, but there’s much more to it than just that. So, with this in mind, we’ve devised a rigorous mental training course to turn you into a fully-qualified crypto ambassador.
To get there though, we’re going to have to cover a lot of ground. That’s why we’ve broken up our ‘Talking Crypto’ course into three bitesize chunks. In this first chunk, we’ll talk about crypto’s core value proposition in (hopefully) easy to understand economic language. In our two future chunks, we’ll take you through some of the trickier language used in the cryptosphere before furnishing you with all the tools and information you need to rebut that pesky no-coiner crypto fud (fud = fear, uncertainty, doubt for all the truly uninitiated).
But let’s not get ahead of ourselves. First up, we’re going to concentrate on blockchain/DLTs foundational economic value.
Crypto has two fundamental value propositions from which its bountiful fruits flow: reductions in the cost of verification, and reductions in the cost of networking. We’re going to take a look at both of them.
So, without any further ado, let’s dive in.
Cost of Verification
For any transaction to take place successfully, the parties involved need to be able to verify some key attributes. Is the item what it says it is? Did the payment arrive in my bank account? Is the currency used counterfeit or authentic? Was the moon landing a hoax? Wait, scratch that last one.
We usually solve these problems by using an intermediary like a bank or lawyer to verify and enforce the terms of a transaction. Of course, these things cost money. And not just money, but data too. You’re trusting a third-party to handle your private financial information, which creates both privacy and centralization risks.
Whoever this intermediary is, enforcing and verifying contracts — be it a government, credit rating agency, bank or Visa — they gain a lot of power from their privileged position. Power they can use to harm you and enrich themselves. In the case of payment providers such as Visa, to the tune of 1–2% for every transaction you make.
In contrast, blockchains provide transaction verification at zero cost. On-chain consensus on a shared ledger allows any party to perform and verify a contract without relying on an intermediary. Both parties know exactly what’s up as they’re both operating on a single source of globally distributed, code-enforced truth.
Remittance agencies charge up to 8% for international transactions, but with crypto you can cut out the middleman and pay <0.1% (verifying the transaction is free, but making the transaction incurs a small fee). And with smart contracts we can build much more exciting transaction contracts than just payments.
In fact, your imagination (and coding expertise) is the limit really. Prime examples are the many DeFi protocols we see today. Protocols which successfully protected their capital pools from borrower default during the recent crypto downturn.
For us at Creditcoin, the focus is credit (if you hadn’t guessed already). By recording credit history on-chain for the purposes of credit performance verification, Creditcoin reduces informational asymmetries between investors and lenders, making capital markets more efficient, open and contestable.
Now, a little test. Can you think of any other industries where costless verification might help?
One example would be the forgery of university qualifications. Right now, these are so time-consuming to verify that most employers don’t even bother. If these credentials were issued on a shared ledger as an NFT, though… Well, then we could automate and streamline this verification process to make it much more efficient.
Cost of Networking
Having relationship troubles? Conversations fizzling out on Tinder? Don’t worry anon, we’ve got some scintillating topics to bring the zest back into your dating life. Why not try our go-to conversation starter: “Babe, we need to talk about the double-edged sword of network effects”.
No luck? Oh well, just look on the brightside. Now you’ve got plenty of time to learn about network effects.
Network effects describe the increasing economic utility a network offers as its user base grows. The trouble is, the more useful a network becomes, the more monopolistic power the network owner accrues. And the owners know that only too well. Just think of Facebook. Because they own the network, they’re in the perfect position to reap the rewards that such a huge monopoly brings. In this case, your personal data. Do we really want Facebook, our governments, or, quite frankly, anyone, to have such extensive knowledge about our private lives?
If not, then blockchains offer an (optionally) privacy-preserving, public and open alternative.
Public blockchains are open, and the data on them is user-driven AND owned. A distributed platform such as this means the benefits of network effects can be disentangled from the costs of centralized market power.
The same market dynamics we’ve described above apply in the global credit industry, too, where valuable credit data is siloed and monetized by existing credit platforms, rather than the end-user. The problem is one of data-ownership.
Creditcoin bypasses these network effects, allowing anyone to control their own accumulated credit history. Any party can record their credit history on Creditcoin for any other party to view, audit, and potentially transact with. The end result is an open network for credit information sharing, and via Gluwa Invest, a borderless credit investment market, too.
Putting it all together
Now that you’re well on your way to becoming a Web 3 guru, we thought we’d help you pull it all together again for your less enlightened friends.
Let’s make it really simple. So simple, in fact, you can explain it to them in a single paragraph:
Blockchain just means a single shared source of truth. Truth which can’t be modified, monopolized, changed or cheated. Truth about who owns what, and how things are exchanged.
Told you it was actually quite simple didn’t we?
With a single shared platform of truth for everyone to use, we avoid the centralization and monopolization risks of traditional intermediation — plus, we save a little time and money while we’re at it, too.
And that’s all there is to it. Well, not quite.
Final Words
Before we go, it’s important to acknowledge that blockchain isn’t perfect. Pretending otherwise won’t win you any friends, or arguments, come to that.
Centralization has its place, and many of the arguments we’ve laid out are theoretical so might not neatly apply to idealized economic scenarios, plus there’s those pesky last mile problems, where on-chain and off-chain worlds don’t always dovetail together neatly — blockchain can only verify digital attributes, which means it can’t do stuff like check your Lambo for scratches (important if you wanted to sell or prove its real-world physical condition).
At the end of the day, the best applications will use blockchain selectively where it’s really needed. Typically, this means digital heavy or native industries. This is also why it’s had such a disproportionate impact in financial services, an almost entirely digital-native industry.
Hopefully this has helped you understand that, while blockchain is really awesome, it’s not a panacea. This kind of nuanced position is sure to resonate better with your audience as you share your crypto enthusiasm with the wider world.
Has all this chatter made you hungry for democratized capital investment markets that drive financial inclusion?
Then download the Gluwa app today where you can invest in some of the amazing fintechs driving financial inclusion abroad. Plus, you can even check some of their credit performance on the public Creditcoin Network.
About Creditcoin
Creditcoin is a foundational L1 blockchain designed to match and record credit transactions, creating a public ledger of credit history and loan performance and paving the way for a new generation of interoperable cross-chain credit markets.
By working with technology partners, fintech lenders such as Aella, and other financial institutions across global emerging markets, Creditcoin is securing capital financing, building credit history and facilitating trust for millions of underserved financial customers and businesses based on the principles of Open Finance.
Toby Bromet
Toby Bromet