“The Truth About Blockchain” from HBR by Marco Iansiti & Karim Lakhani

Notes from the article, “The Truth About Blockchain“.

Blockchain, the technology behind bitcoin, is an open, distributed ledger that records transactions safely, permanently, & very efficiently. Blockchain is a transformative, foundational technology.

Contracts, transactions & records of them are among the defining structures of our economic, legal, & political systems.

This article also compares blockchain to other foundational technologies like TCP/IP (1972-ARPAnet used for email transmissions).

“Before TCP/IP, telecommunications was based on ‘circuit switching’ in which connections between 2 parties or machines had to be pre-established and sustained throughout an exchange. To ensure that any 2 nodes could communicate, telecom service providers & equipment manufacturers had invested billions in building dedicated lines.”

“TCP/IP turned that model on its head. The new protocol transmitted information by digitizing it & breaking it up into very small packets, each including address information.”

“There was no need for dedicated private lines or massive infrastructure. TCP/IP created an open, shared public network without any central authority or party responsible for its maintenance & improvement.”

Blockchain–a peer-to-peer network that sits on top of the internet (2008).

A blockchain framework for adoption by executives:

“In their analysis, “history suggests that 2 dimensions affect how a foundational technology & its business use cases evolve:

1). Novelty–the degree to which an application is new to the world.

2). Complexity–the level of ecosystem coordination involved.

Blockchain Framework for executives & businesses:

1). Single-Use–email was a single-use application for TCP/IP; Bitcoin for Blockchain. Bitcoin “can be thought of as a complex email that transfers not just information but also actual value!”

2). Localization

3). Substitution

4). Transformation–Smart Contracts

‘Smart Contracts’ may be the most transformative blockchain application at the moment. They automate payments & the transfer of currency or other assets as negotiated conditions are met. For example, a smart contract might send a payment to a supplier as soon as a shipment is delivered. A firm could signal via blockchain that a particular good has been received–or the product could have GPS functionality, which would automatically log a location update, that in turn, triggered a payment. We’ve already seen a few early experiments with such self-executing contracts in the areas of venture funding, banking & digital rights management. The widespread adoption of smart contracts will probably require a certain amount of institutional buy-in.

“A tremendous degree of coordination & clarity on how smart contracts are designed, verified, implemented, & enforced will be required. We believe the institutions responsible for those daunting tasks will take a long time to evolve. And the technology challenges, especially security, are daunting.”

Biblio: via HBR–https://hbr.org/2017/01/the-truth-about-blockchain