Economists have been exploring human behaviour for hundreds of years, including how we make decisions, how we act individually, and in groups.
Furthermore, how we exchange value is studied within the institutions that facilitate trades like legal systems, corporations, and marketplaces. Now, there is a new technological institution that will fundamentally change how we exchange value, and it is called the blockchain. I want you to remember that despite blockchain technology being relatively new, it’s also a continuation of a very human story.
We are now entering a radical evolution of interaction. For the first time, we can lower uncertainty. Not only political uncertainty and economic institutions, like our banks, corporations, and governments, but we can do it with technology alone.
Blockchain technology is a decentralized database that houses a registry of assets and transactions across a peer-to-peer network. Essentially, it is a public registry that owns what and who can transact what. The transactions are secure, and, over time, the transaction history gets locked in blocks of data.
These blocks are cryptographically linked together and secured to create immutable records of all the transactions. The world has seen several innovations that have radically transformed the way economic value was created and captured by individuals and companies.
Blockchain is another step in the evolution of technology and especially in banking. Speaking of the continuation of a very human story, 30 years ago, the Internet came to the stage. It took less than a decade for the masses to adopt it as a general purpose technology. From its humble beginnings as a military application, the internet has become commonplace.
Without a thought we “go online” to pay bills, shop, order food, take classes, and much more. If you need further proof of how our world has changed, think back to the company Blockbuster.
Blockbuster was the world’s largest video rental company but failure to adapt to a changing world sent them into bankruptcy. Their direct competitor, Netflix, saw an opportunity and they seized it. By offering to mail-order video rental and eventually streaming, they built a business model that far outpaced the industry giant. Despite having hundreds of brick-and-mortar storefronts, they moved too late in embracing the new opportunity and adjusting their business model. Examples of industries that have been completely reshaped by the Internet are countless.
The companies that manage to win big are the ones that embrace the new technology and built their business models around it.
Why am I saying all this in the context of blockchain? Well, I want to help you envision how immensely impactful blockchain will have on the banking industry.