The Explainer: Understanding Blockchain's Reality

0:28This episode is brought to you by Google Chrome. of America for a reason. With SUVs made to move with your rhythm. The versatile Equinox tackles your entire day. The spacious Traverse fits your crew and your whole weekend. And tracks bring style with value you can count on. All infused with tech that has your back. So your drive always hits the right chord. Chevrolet. Together let's drive. Blockchain is still in its infancy, but many believe it could revolutionize business and government, creating new foundations for our economic and social systems. Professors Marco Ian Sidi and Kareem Lakhani compare blockchain's possible evolution to that of the internet communications protocols called TCPIP.

1:14TCPIP was originally invented for small-scale two-way email exchanges, but it ultimately evolved to become the basis for the entire internet. Similarly, blockchain was invented as a peer-to-peer network that enabled two-way payment transactions of the cryptocurrency Bitcoin. But like TCPIP, blockchain has outgrown its original purpose. It now has the potential to become the system of record for all internet transactions. In other words, it could become what is called a foundational technology, creating a new technological infrastructure for our economic and social systems. However, this radical change won't happen overnight.

1:50Ian Seedy and Lakhani suggest that blockchain will likely pass through several phases before fully reshaping the economy. First is the single-use phase. Here, the technology is used in applications low in novelty and not requiring coordination among many different parties. For TCPIP, email was an inexpensive single-use application. For blockchain, Bitcoin offered immediate value to those who used it simply as an alternative two-way payment method. Second is localization. Here, the technology spreads to more novel innovations that need only a limited number of users to create immediate value. We see this now in the financial services sector's use of local, private blockchain networks to connect through a distributed ledger.

2:34During the third phase, substitution, the technology faces the highest barriers to adoption. It's used in new applications that build on existing ones, but intense coordination is required. For blockchain, think cryptocurrencies that have grown out of Bitcoin. They need widespread adoption to be of any value, but they also pose challenges for governments, institutions, and consumers. In the last phase, transformation, truly novel applications emerge that require coordinating many actors and unifying institutional standards. The most transformative blockchain application to date may be self-executing smart contracts that can automatically trigger a payment to be sent to a supplier as soon as a shipment is delivered.

3:18Blockchain faces many hurdles. An executive should think carefully about the risks. However, there's little doubt that blockchain will affect your business. The big question is when to stop experimenting and really press on the accelerator.

3:40Thank you.