Blockchain: promise or fad?

“Blockchains will replace networks with markets”. With this phrase, Naval Ravikant, one of the legends of Silicon Valley, start one of his popular tweetstorms. A tweetstorm is a rapid succession of connected posts made by a particular user on the social media application Twitter. Naval, a passionate cryptocurrency enthusiast has been writing important topics about the universe of distributed applications and financial inclusiveness, the risks and opportunities that are raising each day and the future that may lie ahead. When Satoshi Nakamoto wrote his paper “Bitcoin: A Peer-to-Peer Electronic Cash System”, the very first phrase in the abstract convenes the idea of connecting peers that would allow online payments to be sent directly from one party to another without going through a financial institution. This assertion makes sense when we observe one of the most reliable network designs (BARAN, 1962) that could maintain communication systems available in the face of damage from nuclear weapons during the Cold War. The ingenious models of centralized, decentralized and distributed models are what define the Internet as it is today.

There are many discussions about the idea of Bitcoin and other cryptocurrencies, especially with the process of creating, distributing and updating information on values, where there is a huge demand for electric power and uncertainties of central banks, which demonstrate explicit aversion to this new class of digital assets.

In the last 2 years, in a concentrated effort to investigate the news about blockchain, personally I’ve collected around 5 thousand links that explored new initiatives led by entrepreneurs, companies, fintechs and different players, all trying to establish an “interface moment”: a tool or technique that can spur the use of a particular technology. In the early days of Internet, the Netscape browser was considered the “interface moment”; its incredibly capabilities against the typical and obscure black screens with green characters enabled a huge public adoption of the Internet. This “interface moment” for cryptocurrency and blockchain hasn’t arrived yet, but there are some approaches based in these 3 news that came to light in the last months and weeks:

1. JPMorgan created its own coin for payment, becoming the first U.S. bank to create and successfully test a digital coin representing a fiat currency. With this initiative, they aim to provide instantaneous payments using the blockchain technology. It is remarkable how the market pressure can make the senior management of an institution with the importance of a JPMorgan goes out of the box, especially when its CEO heavily attacked Bitcoin in previous years, affirming that no cryptocurrency would circumvent government control.
2. IBM recently rolled out its huge blockchain called IBM Blockchain World Wire. It clears and settles cross-border payments in seconds. It will support operations in 72 countries with 47 currencies and 44 banking endpoints and more than 1081 unique currency trading pairs. This is going to be one of the biggest blockchain technology to challenge well established institutions like SWIFT. The objective is to reduce friction which creates time complexity and cost. Having a digital store of value that can move with the payment data, the whole process is much more seamless and a lot more point to point, getting rid of complexities of third parties. There are staggering numbers that backs IBM initiative: 97% of the world’s largest banks are IBM clients, 90% of global credit card transactions are processed on IBM mainframes and 6.2 million financial transactions occur per second. The number of transactions may grow as this initiative can open space for the unbanked, who produces and consumes goods and services. 
3. Facebook is facing one of the biggest backlash in its history due to privacy issues. They hired a blockchain experts team to establish its own coin dubbed “Facecoin”, so they can use WhatsApp and it’s already established end-to-end messaging cryptography to support financial transactions inside the app. This cryptocurrency may enable a multitude of financial transactions and a potent ecosystem where applications can be deployed and generate an incredible marketplace. There are rumors they will start the deployment in India, which is the world’s top recipient of remittances with its diaspora sending a whopping USD 80 billion back home. There’s already a big player in China that has been doing this (and much more) in the last few years: the behemoth Tencent with its WeChat platform. They are aware of Facebook initiative and are trying to push their services to India. The problem: WeChat is not popular in the country, while Facebook, Messenger and Whatsapp dominate the messaging applications in the country.

Although the huge influence of these players in the market still is something to confirm, these news may not be considered “interface moments” for a decentralized network model. According to Baran, the centralized network is basically vulnerable. Also, according to Naval’s thoughts: “It’s nonsensical to have a blockchain without a coin just like it’s nonsensical to have a market without money. It’s nonsensical to have a blockchain controlled by a sovereign, a corporation, an elite, or a mob. Blockchains give us new ways to govern networks. For banking. For voting. For search. For social media. For phone and energy grids. Networks governed without kings, priests, elites, corporations and mobs. Networks governed by anyone with merit to the network. Blockchain-based market networks will replace existing networks“. And Naval complements his thoughts like Mike answering Bill’s question how he got bankrupted, in the Ernest Hemingway’s 1926 novel, The Sun Also Rises: “Gradually and then suddenly.”

References

Baran, Paul. 1962. On Distributed Communications Networks

Nakamoto, Satoshi. 2008. Bitcoin: A Peer-to-Peer Electronic Cash System

Ravikant, Naval. 2017. https://twitter.com/naval/status/877467629308395521

JP Morgan Coin. Feb, 2019. https://www.jpmorgan.com/global/news/digital-coin-payments

IBM Blockchain World Wire. March, 2019. https://www.ibm.com/blockchain/solutions/world-wire

Facebook “Facecoin”. March, 2019. https://coincodex.com/article/3260/what-impact-could-facebooks-digital-currency-have-on-the-financial-industry/