Recently, Facebook admitted that an estimate 87 million users personal data have been breached and improperly used not by some nefarious “foreign” hackers but an American data-mining company named Cambridge Analytica. Furthermore, and equally as concerning is that three major companies; Best Buy, Sears and Delta Air Lines have also reported data breach. The companies said that some of their customers payment information were compromised during online chat sessions with customer support.
When it comes to cryptocurrencies and blockchain technology, there has been a lot of exuberance and often unhealthy speculation mixed with misinformation and ignorance about blockchain technology and how it works. In this post, I will discuss a critical area of innovation that cryptocurrencies and the blockchain which is often overlooked and that is the blockchain is a displacement technology of “trust-based” business models.
Could Privacy concerns be the chink in the armour of e-commerce & trust-based business models?
Trust is foundational to our economic system. Trust between two parties allows for transactions to occur and value to be created. As it relates to the internet, a small concentrated group of financial institutions, internet providers and major internet companies exclusively serve as “trusted” third parties. And consumers have been willing to give up their privacy and personal information for the convenience that the product or service brings. However, customers are no longer comforted by the size of a company or the strength of the company’s brand. Companies such as Facebook, Delta, Experian and Sears are facing huge regulatory and political headwinds as they grapple with privacy concerns.
I believe we are at an incredible moment of ripe opportunity for blockchain technology to strike a dagger in the heart of the existing structure of the internet. This is one of the biggest advantages of blockchain technology that gets overlooked; is that the blockchain has ushered in a new type of business model which we call “proof-based” business models.
One of the most disruptive aspects of cryptocurrencies and blockchain technology which are often overlooked, is how the uses of cryptographic tokens (digital signatures) to secure transactions and the levering of distributed compute nodes (mining nodes) to verify those transactions as a solution to migitage consumer privacy and cyber-security risk. In a blockchain network users don’t need to give sensitive personal information. As long as the user has a native token, she/he can make transactions on the network and the user’s identity is protected. The innovation that the blockchain brings cannot be understated and is a total paradigm shift from the existing internet 2.0, which is based on a trusted-third party business models.
So what does this mean?
This means that cryptocurrencies and blockchain technology has ushered in a new type of business model designed for “trustless” environment. Let’s take a step back and define “trust.” As it relates to economics; trust is a fiduciary relationship between two parties. Technically, one party known as the trustee which holds title (manages) to property or other asset(s) for another party called the trustee. For example when you purchase a new flat screen TV from Amazon, you “trust” the company to “secure” and verify the transaction by making sure:
- That all buyers and sellers are real
- Make sure the vendor is shipping the exact product they advertised on the website
- Amazon makes sure your package is shipped
- Resolve any disputes (payment refunds, product replacement, etc.)
- Make sure that the buyer has the money to make purchase
This is all great and is necessary. However, the major flaw in a trust-based model is that the users of the platform (in this example, the platform is Amazon’s marketplace website) must provide their private information to Amazon across the internet so that they as the trusted third-party can verify that the buyers and sellers are who they say they are and that they have the money/goods/services to transact. Furthermore, we trust that these third-party entities will also protect our information from fraud and misuse once the transaction is complete.
The blockchain network approach securing and verifying transactions in a completely different way than trust-based models. Instead of concentrated third-parties; blockchain networks leverage distributed compute nodes to verify transactions through network protocols based on function of “proof” call PoW (proof-of-work) and PoS (proof-of-stake). Proof is defined as the evidence or argument establishing or helping to establish a fact or the truth. Both protocol methods look to achieve the following:
- Verify network transactions in chronological order
- Nodes prove that they did the work and it’s accurate
- Mitigate fraud & cyber-attack (i.e. 51% attack, Sybil attack, etc.)
- Mechanism for nodes are selection
So is cryptocurrencies and blockchain technology ready to displace our current ecommerce business model and disrupt existing tech royalty (FANG)? Only time will tell.
Please comment and share your thoughts and ideas, so we all can grow.