March 18, 2019
The Problem With ‘It’s Blockchain But Not Crypto’
Posted by Andries Verschelden
As we build our new Blockchain practice, I keep on hearing the phrase “it’s blockchain, but not cryptocurrency” in an attempt to satisfy business audiences that you are talking about something “corporate legitimate.”
The premise with “blockchain but not Bitcoin” is that we could get the clean, green pastures of a controlled enterprise blockchain with some smart contracts whipped cream on top of it. Thus, leaving behind the anarchy-seeking crypto crowd and their open-source public blockchains.
I must admit, I went through a phase myself where I thought the two concepts were somehow separable from one another. I have come to realize the limitations of this thinking.
By far the most prominent use case of blockchain technology today is that it enables the exchange of value in a trustless environment. For that exchange to have significance, the value that you are exchanging must be captured digitally and recorded on the blockchain. This allows for a value transfer that is immutable and trustless. If you are not capturing the value digitally, what you have is merely a record of something (cargo in a logistics supply chain, for example).
Exchanging of records already benefits from screeching-fast database solutions. These can be set up to be distributed (multi-managed/accessed), scalable, and immutable (cryptographically secured). You can even run real-time analytics and apply machine learning algos on top of this database, without waiting for those pesky blocks every 10 minutes. In fact, Amazon’s QLDB solution does exactly all of this in real-time. This makes up a killer database solution. However, think of the last time you got genuinely excited about a database solution ─ I dare you.
A new type of database (although beneficial) is not the exciting part of the blockchains; the real innovation is the fundamental change of how we exchange value in a trustless, immutable, censorship-resistant, borderless, peer-to-peer and secure environment. This will unleash a slew of use cases around micropayments, programmable money (smart contracts), peer-to-peer transactions and trustless business transactions. Anything from automatic payment of copyright royalties to monetization of your own “eyeballs” to tokenizing the Mona Lisa becomes possible in a world where we can capture value securely at the protocol layer.
So, what is holding us from widespread mass adaptation? The public blockchains that we have today are lumpy, slow and suffer from throughput and scalability challenges. This makes them hard to use to buy a cup of coffee with cryptos, let alone execute micropayments. We think ultimately time will resolve this obstacle. Inferior computer power will catch up with superior architectural design.
Today’s blockchains are, however, very suitable for transferring high-value (digital) assets. These digital assets could represent titles and rights to different types of property: real estate, collectibles, equity ownership, loans, scarce goods. I would even put stablecoins in this category, as a majority of stablecoin projects are currently backed by fiat money. Transferring these digital assets in a direct, peer-to-peer way is a killer use case. The benefits of tokenizing certain asset classes are numerous: It allows for fractional ownership, removes rent-seeking intermediaries, facilitates clean cap table management, reduces settlement time, and most importantly, increases liquidity in an asset class; thus reducing the cost of capital.
Blockchains enable digital value exchange. In this respect, they are a unique and groundbreaking innovation. Without the value captured in the blockchain (token or cryptocurrency), you shouldn’t put up with the limitations of the technology. Once the value is captured, it allows us to transact in a peer-to-peer way with strangers. That is what makes it a killer product.
If you’d like more information about blockchain and cryptocurrencies, reach out to our Blockchain team.
Andries leads the Blockchain practice and brings a passion for growth to his clients. He works with a variety of crypto and blockchain projects and exchanges, helping them navigate accounting, audit, tax and risk best practices as they grow. He also helps non-crypto industry clients transform their business through blockchain technology enablement.
Prior to joining Armanino, Andries was CEO at The Brenner Group, a boutique Silicon Valley financial services firm. Before that, he was a partner at Moore Stephens Belgium. He started his career at PricewaterhouseCoopers. He grew up in Belgium, and lived and worked in New York and Shanghai before moving to California.