Blockchain is full of promise. Investment in the space totals billions of dollars. Large corporations, venture capital funds, and initial coin offerings are funding projects. The activity is not completely misguided; blockchain has the potential to disrupt economic activities ranging from simple payments to the structure of a corporation as it currently exists. In this first of three articles, we’ll cover the basics.
Traditionally, some of the strongest competitive advantages have come from centralization. Network effects, for example, can lead to huge profits for companies that centralize and control transaction activity--for example, payment networks, marketplaces, social networks, and futures exchanges. Similarly, centralization can create competitive advantages via economies of scale, as fixed costs are spread over a large number of transactions. Blockchain technology provides a way to decentralize three important economic functions: financial transactions, identity and data management, and marketplaces. Decentralized solutions could disrupt companies that create value by centralizing such activities.