Much gets lost in the current “bubblicious” and exhilarating world of cryptocurrencies. In some cases, the “get-rich-quick” stories are reminiscent of the California gold rush. Although these are exciting times, an investor in blockchain technologies, whether a miner or crypto-trader; must ask themselves two critical questions:
1. What problem does the blockchain solve (value proposition) and its impact on global markets?
2. Where are there opportunities of inefficiencies in the current system that blockchain technology can replace?
In other words understanding what differentiates one blockchain platform from another is extremely critical, especially from an investor’s point of view. Much of the conversation these days about blockchain and cryptocurrencies are often misguided and centered around misinformation. However in this post, let’s begin to explore some of the value proposition of the blockchain and understand what drives the levers of value in this new paradigm by answering the two questions above.
Question # 1: What problem does the blockchain solve (value proposition) and the impact on global markets?
As I wrote in the previous post, blockchain technology is positioned to disrupt and up-end today’s current e-commerce business model at its foundation. First of all, blockchain technology is a displacement of the current business paradigm of trusted-third party models (TTP). Blockchain is a technology that enables distributed "proof-based” business model.
In trusted-third party models; an entity facilitates interactions between two parties in a fiduciary capacity. Trust-based business models work but are costly and vulnerable to the inherent risk of trust. To the contrary, a proof-based model enables the power of “distribution” in that it enables the network of constituents itself to secure and verify a system’s state efficiently and cheaper.
This point is extremely important, because trusted-third party schemes is how our existing internet architecture are designed. Displacement technologies such as blockchain networks will have a huge impact on the way we do business. The paradigm-shift from consolidated trusted-third party systems to a distributed proof-based system will have an enormous impact on the following areas:
• Cyber-security & data privacy
• Banking & investment
• New & unique business models
At the core, blockchain technology attacks the very foundations of “trust-based” systems and aims to replace with a distributed “proof-based” systems. The platform to achieve real-world use case of a proof-based business model and achieves positive mass network effect will usher in new types of companies solving new types of problems based on a total difference of mechanism of reaching consensus- establishing value.
Question # 2: Where are there opportunities of inefficiencies in the current system that blockchain technology can replace?
Having a fundamental understanding of the true value proposition of blockchain technology coupled with the technical understanding of how each protocol works; opens the door for a more interesting conversation on areas were the the existing system is most vulnerable. In the case of Bitcoin, the network’s purpose is to be an electronic payment system based on cryptographic proof instead of trust. This is a different value proposition then the Ethereum network which purpose is to be a distributed protocol that offers a platform which promises to support more general applications beyond electronic payment applications and protocols such as Bitcoin, Dash and Litecoin.
Understanding these core but critical differences is the first step in differentiating between platforms for new entrants and a reminder for more seasoned crypto participants in evaluating blockchain platforms. In conclusion, it is important to understand the “real” core problem the blockchain network is proposing to solve. And is the technical challenges and value proposition feasible or even necessary in comparison to its rival networks?
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