There has been a lot of hype around blockchain today, but if you ask around what blockchain is actually useful for, getting a clear answer is not easy. Blockchain is often said to revolve around trust. And here you will see why blockchain is good for business.
So, Why Is Blockchain Good for Business
Think of the opening scene of
Hugo is quite the green thumb; he loves to grow vegetables. Sawyer found an axe in the wreckage and started chopping firewood. Kate is an excellent hunter; she is handy with catching wild boars. Jack, on the other hand, salvaged some medicine, as the go-to guy when others fall sick and in need of some antibiotics. A barter economy in development. When Sawyer is hungry, he trades 1 log of firewood with Hugo for 4 tomatoes. Kate will trade a wild boar for 20 tomatoes. Jack will trade a pill of antibiotics for 4 logs of firewood, but will also accept a wild boar instead.
The Drama With Centralization: Trust
One morning, Jack wakes up with a great idea. Let’s step our civilization up and bring in the abstract concept of “money”. He pitches it to the gang. Saying they would create an IslandCoin and use it for our economy instead of trade by barter, this way, he could still get firewood from Sawyer, even if Sawyer does not need any antibiotics. The proposal is very simple… a tomato is worth 2 coins, a boar is worth 40 coins, and so forth. How many coins should each of us start with? Kate asks. Well, let’s make it fair by starting with 100 coins each.
Since the survivors don’t have access to metal on the island, they obviously can’t mint actual coins. Jack suggests keeping track of how many coins each of them has. He comes up with a simple system. He’ll write on a piece of paper a balance of 100 next to each of their names. Every time you want to transfer some coins to anyone, just let him know the amount and he will update the numbers on his piece of paper.
Sawyer doesn’t trust Jack very much, especially with the whole alpha male tension around Kate. Why should he hold the piece of paper? he asks. What prevents Jack from messing around with the numbers behind his back? Sawyer pitched his idea to replace IslandCoin with his version called PacificToken. When you want to make a transfer, just let him know, and he will keep track. Well, it is becoming clear that Jack and Sawyer won’t play nice together. Kate tries to resolve the conflict by offering to track the numbers herself. It’s great because Jack and Sawyer will do anything she says anyway. But Hugo is not too happy about that, though.
The gang can not decide on one individual who will keep track of the balance sheet; they say we have a deadlock. The idea falls through. Fast forward one year. The barter economy lives on. It sucks and they suffer, but that’s the only thing they manage to get working.
One day, Kate had had enough. The barter thing is too tedious. Wild boars have become the most popular meal on the island, and she is the only one who can hunt them. She feels confident enough to tell the rest of the gang that she is resurrecting the old IslandCoin idea. And she will keep track of the balances. She won’t trade anyone boar anymore unless they accept her system. The gang is fed up with this barter thing anyway, so reluctantly they agree.
Another year goes by. Kate calls the shots, and everybody has grown to accept her rule as a fact of life. Whenever you want to trade something on the island, you just go to Kate and tell her to update her sheet of balances.
Kate has become the island’s omnipotent central bank.
We ended up with a working system, but nobody except Kate was thrilled about it. It is not very efficient and Kate can cause mayhem if she pleases, but nobody knows of any other way.
Trust Becoming Reality: Blockchain and Decentralization
Suppose another mysterious survivor shows up on the island one day (this happens from time to time on “Lost”). His name is Mr. Nakamoto and he has a great idea for the gang. It is called decentralized consensus and it’s a nifty method where the entire gang can maintain the balance sheet together. Kate won’t be able to manipulate the numbers anymore.
Well, none of them will.
Even if one of them is out fishing, it can still work out. No need to wait for Kate anymore to be free to handle their business. The gang is happier. If Mr. Nakamoto had appeared in the pilot episode, they would not have had to waste a year on this damn barter system or another year living under Kate’s economic dominion.
At first, it seems that Mr. Nakamoto’s idea is just relevant for the island monetary system. But this is not the case; it is actually relevant for many areas of life (and business) on the island.
Take advertising, for instance.
Sawyer used some of his firewood to build a big sign in the middle of camp. He thinks it is a great idea to let Hugo write on it, and which vegetables are available this week. Kate loves the idea. Whenever she returns from a successful hunt, she wants to display the day’s bounty on the sign so everybody knows to come her way to trade.
An argument ensues. There is one sign and both Hugo and Kate want to use it. Jack, ever the peacemaker, offers a solution. If Hugo and Kate want to use Sawyer’s sign on the same day, they will bid a few coins to pay Sawyer for the pleasure. They will bid discreetly so the second bidder won’t be able to outbid the first by a tiny amount. Naturally, the highest bidder will get the sign. Sounds like a fair system, but who’s going to go over the discrete offers and choose the highest one? Jack nominates himself. He’ll collect all competing bids and write them on a piece of paper, and by noon will let Sawyer know which sign to display. It’s quite a lot of hassle to do this every morning, so Jack will also take 1 coin as a fee for his trouble.
The gang does not love this system, but nobody has any other idea. Hugo is mostly worried that Kate will take advantage of her womanly charms to get Jack to choose her bids even if they’re lower.
One day, Jack finds a new stash of antibiotics and decides to use the sign to let everybody know about it. The next morning, the gang wakes up and sees Jack’s banner displayed on the sign. Kate is not very happy that Jack is collecting the discrete bids and submitting his own bids to use the sign at the same time. The whole thing is pretty fishy.
Once again, we have ended up with a working advertising system, but nobody except Jack is really thrilled about it. He suggests using the same principle of decentralized consensus to choose the highest bid. The entire gang will maintain the bid list together, and Jack won’t be able to manipulate the results anymore. The gang is happier.
The fact that in order to do business, the island inhabitants have to trust one of their groups brings an imbalance to the system. They have no reason to trust each other. After all, they each prioritize their own personal interests. This lack of trust brings the system to a stalemate, where the inhabitants either don’t do business together or are forced to work in a way where the majority is not truly happy.
Closing Up
Blockchain is the magical black box that implements Nakamoto’s decentralized consensus. If any of the gang had packed a blockchain on the plane in advance, life on the island would have been that much easier and friction-free. And remember, it is much more than just currencies. Blockchain has the potential to improve many areas of life.
