The Effect of Blockchain Technology on individuals and Businesses.

Economists all over the world have been exploring people’s behaviour for hundreds of years,  how we make decisions, how we act as individuals in groups and how we exchange value. They have studied institutional systems that facilitate our trade like legal systems, businesses, governments and the market place.
 

There is a new technological system that will fundamentally change the way we exchange value, its known as Blockchain this is a bold statement, Blockchain is  relatively new, it’s also a continuation of our human story, and the story is, as humans we find ways to increase trust  about one another so that we can exchange value.

Now, one of the first people to really explore the idea of institution as a tool in economics to increase trust and be able to do trade was Douglas North a Nobel winner in Economics. He pioneered what is now called new institutional economics, and what he meant by institution is not just formal rules like the constitution or the informal constraints like bribery, these institutions are really like the grease that allow our economic wheels function and we can see this play out in the cause of human history.

If we look back during the hunter and gatherer economies, we really just traded within our village structure. We also had some informal constraints in place but we enforced all of our trade with violence or social repercussions.

As societies grew more complex and our trade routes became more distant we started to build more formal institutions such as banks, governments, corporations and currency these institutions helped us manage our trade with trust as complexity grew, our personal control reduced in the  running of business.

Eventually, with internet we put all these same institutions online, we built platform market places like Jumia, OLX, ebay, amazon, and Alibaba, just faster institutions that act as middlemen to facilitate human economic activities.

As Douglas North saw it, institutions are tools to increase trust so that we can connect and exchange all kinds of values in the society.

 I strongly  belief we are now entering a further and radical evolution of how we interact and trade, because for the first time we can enhance  that trust  not just political and economic institutions like banks and governments but we can do it with technology alone, yes with  technology alone.

So, to a layperson what is this thing known as Blockchain Technology?

Blockchain technology is a decentralized database that stores a registry of assets and transactions across peer-to-peer network; it is a public registry of who owns what, and who transacts what. The transaction is secured through cryptography and over time that transaction history gets locked in blocks of data that are cryptographically linked together and secured, this creates an immutable and unforgeable record of all transactions across the network. This transaction record is replicated to every computer that uses the network.

Blockchain is not an application; it is not a company, in simple terms it is close to something like wikipedia. Wikipedia is a free online encyclopedia, created and edited by volunteers around the world and hosted as an open platform. Those who know wikipedia can confirm that, we can see everything in wikipedia and we can create our own wikis in the same infrastructure with the  use of words, images and keep changing these data over time.

Blockchain uses the same concept, it’s an open digital  infrastructure that stores many records of assets, history of custodianship, ownership and location of digital assets like bitcoins, title of ownership contract, intellectual property it can be a certificate or even personal identification information.

At its core, that is how it works, a secure and decentralised temper proof database of transaction records.

How does Blockchain increase the level of trust or promise to transform our economic activities?

Imagine  three levels of managing  trust, first not knowing who to deal with, second not having visibility of the item or commodity being traded, thirdly not having recourse if something goes wrong in this exchange of value.

First take this for example, if i decided to buy a mobile phone from an online platform like  Jumia, OLX, ebay or amazon, how do i confirm who among these companies have  the best  reviews and trusted ratings? How do i assess the level of quality of products supplied by them? they are all fragmented with no open global database that can verify this claim. How does the government issue an Identification card to a new applicant, that individual must possess unique attributes that reveals cryptographic proof that one is over 18 years and  therefore can be trusted to trade.

Secondly, not having visibility or transparency of a good being  traded. Phone companies deal with different vendors along the horizontal supply chain that do not use the same database. How then will I know the phone I bought is the same phone I will receive in my mail.

By using Blockchain you can use shared reality across nodes and these nodes do not need to know each but monitor each other like Wikipedia works. It’s a shared database with one  single truth, we can create a database that all the vendors can use in real time,  as my phone travels across the world i can see a digital identification of the vendor.

Thirdly, what if you don’t sent me the phone?

Blockchain has the capability of smart contracts without third party enforcer. You don’t have to release the phone until all conditions are met.

Blockchain technology is at its infancy stage but there tonnes of people working on this breath-taking  innovation and a science of creating a technological institution in a decentralised way.

By converting uncertainty to certainty by enhancing trust in our exchange of value.

We need to be prepare ourselves for this game changer.

The Author,

Ekaale Ekuam

Chair, Turkana Professionals Association (TPA)

ekaale.ekuam@gmail.com

https://ekaaleekuam.blogspot.co.ke/