Guest post by Patrick Meehan from Volition
Patrick is the CEO of Volition.
I recently attended a panel of cryptocurrency experts (some of them skeptics) talking about cryptocurrency and then blockchain. The panel included computer science experts, investors, financial advisors, and intellectual property lawyers. It was good even with smart people, even if the discussion was a bit “two-years-ago.”
They were asked if they considered cryptocurrency and blockchain revolutionary. There was a lot of discussions (and a little debate) over the value of anonymity, immutability, decentralization, free speech and other things people like to say about blockchain. But I’m not sure those things are as proven or valuable as people think they are.
Most protocols are pseudonymous. Those offering “true” anonymity are still experimental. If criminals are betting that any of today’s protocols will protect their criminal enterprise in the long run, I hope they look good in orange.
Similarly, the value of immutability depends on the application. Immutability is fine as a technical concept, but we have yet to see court cases argued on it. Show me a claim based on immutability and I’ll show you plausible deniability.
And as for cryptocurrency upending existing power structures, I’ve got some swampland in Florida to sell you. Should the status quo ever truly be threatened, get ready for some very public crucifixions.
So, while these aspects of blockchain are compelling, I think they distract from what, to me, seems like one of the most interesting and immediate features of blockchain technology: the commoditization of transactions.
Think about that for a moment.
It’s incorrect to say that blockchain transactions don’t involve a middleman. Of course, they do: the miner, or validator if it’s a permissioned blockchain. Blockchain transactions aren’t necessarily peer-to-peer.
The innovation is that thanks to the protocol, one miner’s transactions are as good as any other’s.
While miners might charge different amounts to process transactions (or even nothing at all), in the eyes of the protocol, all transactions of the same type are equivalent. In fact, if a miner tries to create a proprietary transaction to gain an advantage, that transaction will be rejected. Just try mining oversized blocks and see what happens.
This turns the typical market dynamic on its ear by transforming the lucrative business of cornering a market for specialized transactions into a decentralized market of competing providers. In a market where all vendors are equal and cannot differentiate through value-adds or advertising, prices should theoretically fall to just above the hard cost of processing.
In other words, the service becomes a commodity.
This is the real value of blockchain, and it’s a broader definition than it seems. If you look for businesses that exist to monetize transactions, you’ll see them everywhere. Even social media posts are transactions that platforms hope to monetize.
For this revolution to work, the mining network must resist consolidation. If not, we get the worst of all worlds: a thin-margin business running at a much higher cost than what could be provided by a centralized service. Just look at the consolidation of hashing power on the Bitcoin network, it’s practically cornered by Bitmain and other large organizations.
It might even be argued that any permissionless protocol that fails to fully commoditize transactions cannot compete with the efficiency of a centralized competitor.
What’s more efficient? A huge mining pool burning a small country’s worth of electricity and paying the cost to slowly synchronize a ledger across thousands of servers; or, that same service, but centralized and running in a scalable cloud? You tell me.
With a protocol that allows public participation while mitigating consolidation, blockchain has the potential to obliterate business models and radically lower costs through the commoditization of transactions. This is the true value of blockchain.
Cover Photo by Benjamín Gremler on Unsplash
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