Harvard Business Review: Blockchain

So this blog is taking a bit of a turn. I will still utilize this to review books and organize my thoughts and learning of my day job, but as of late, my focus has shifted a lot of my daily learning into the world of finance and investing.

While this is a topic that some would find boring and dull at best, I simply cannot read enough about it. I even subscribed to the WSJ, and not just the digital version either. The tried and true paper version. There is just something about holding a paper as you read it.

So with all of that, let me discuss a book I recently picked up. It is not a book that is on finance per se, but a book on a system that has great potential to impact business and the finance world to a great extent.

Bitcoin Logo

I am sure if you are reading this post, you have heard a couple of terms like Bitcoin and Cryptocurrency. You may have even heard of Dogecoin, as it has picked up some steam and press a lot lately due to Elon Musk. Now, if you don’t know those terms that is OK but if you don’t know Mr. Musk, then you have been living in a cave.

Blockchain is not cryptocurrency. You cannot purchase it, you cannot spend it. It is the structure that Bitcoin was designed on. Blockchain is a peer-to-peer framework that sits on top of the internet. Yes the first blockchain was Bitcoin and used for financial transactions, but it can be used for lots of other functions as well.

Now you may be saying to yourself right now “If this is not something I can purchase or invest in, then what is the point?” I would have agreed with you had I spoken to you before reading this book. While before reading, I did see some value with investing in cryptocurrency, seeing the true value came after reading the book. Part of educating yourself comes with reading about and researching things that you have little to no experience with, for me that was blockchain. I had heard the term enough on investing websites which encouraged me to purchasing the book while I was on vacation in a bookstore in Portland OR. In short, what I can say about blockchain is that it is a framework that many things, or as this book calls it “Internet of Things” is built upon.

Side note, the term "Internet of Things" has been cropping up around "town".  Probably something to pay attention to.

There is a chapter entitled “Blockchain Will do to the Financial System What the Internet Did to Media”. This is true. The system is not controlled or regulated by one body. For some, that is scary, for others they like that it lack governmental control.

The changes coming from blockchain will be as large as the invention as the internet, the downside is that it will take time. Investing in blockchain technologies moving forward will not be a quick payoff. It will take a great deal of time. This reminds me of one of my favorite quotes:

Investing is taking money away from the impatient and giving it to the patient.

~Warren Buffett

Since bitcoin is built on blockchain it is secure and free or almost free from financial hackers. The thing that appeals to most people about bitcoin (BTC) is that there is a fix quantity, just like gold. The government does not get to decide how many BTC there are out there for people to have in their “wallets”. It resists inflation much like gold.

The BTC blockchain give power to all stakeholders. None should have a greater influence than others. Any changes to the system require consensus. The problem here is that it takes a great deal of work to get consensus thus it is resistant to change. Another important part of this structure is that blockchain frameworks resist political governance. They are governed by all who participate.

Blockchains can be used to to ensure data integrity. It will give individuals the control over how their information is shared such as medical data. They can be used in identity. We have all heard the stories of parents leaving the hospital with a baby that is not their own. Blockchains can be used to ID bracelets to ensure that the identity of the baby is correct. The only downside is that a human must enter the data and humans do make mistakes.

The most realistic place I see blockchains being used is in the financial system. Our financial system is antiquated. It is really paper-based wrapped in a “digital wrapper”. It must pass through a series of intermediaries before reaching its final destination. For example, imagine you would like to send a family member who lives overseas $20 for their birthday. You go to your bank to do a wire transfer and they are going to charge you a fee. The receiving bank is also going to charge a fee for the monetary conversion of funds. By the time your family member get their money for their birthday, they will have $5 from the $20 that you sent them. That is great, they can go to the movies by themselves (well not really going to the movies is extremely expensive). Now imagine that this could all happen without the two banks involved and it would only cost fractions of what it normally would. Cutting out the middle-man reduces the cost to the individuals.

There is so much more to this book than what I covered here. While I was a skeptic, and I still might be, it is important to embrace new technologies as they arise. How many people back in the 90’s said the internet will not transform they way we do things? Even companies refuse to embrace new technologies as they come up. AT&T could have created Skype, VISA could have created PayPal, or even Marriot could have created AirBNB. Imagine where Ford or GM would be today had one of them created Uber.

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