Blockchain: A sample case for how it can affect your life

Before there were banks, people used to trade by exchanging goods of value between themselves. This system was not scale-able due to the logistics involved. To solve this problem states came up with currency, which was issued by the state and value of the currency was guaranteed by the state. Primary form for these currencies used to be metal, usually gold or silver. When humanity developed modes of transportation and started trades between far off places, it became extremely challenging to rely of metal coins, so Kublai Khan introduced paper currencies, to make the trade easier for merchants trading between China and Europe. This was a great innovation for the time however when trades became larger and more widespread even managing paper currencies became challenging thus came banks. Banks were the entities who were trusted with safekeeping of money and facilitate trade by acting as trusted middle parties managing the transfer of money from buyer to seller as per their agreed contract. So all this innovation throughout the history over centuries had been to facilitate trades between two parties bound by a mutually agreed contract without relying on mutual trust. Well, blockchain provides the necessary technology to facilitate above mentioned trade without need for a trusted third party in the form of banks. However it is not easy to throw away hundreds of years of evolution just because technology has finally managed to solve the original problem, resulting into a lot of resistance from various quarters. Change in technology is easy, the more difficult part is change in behaviour and mindset, which will take time, couple of decades in my opinion.

Adoption of blockchain has to start in a manner that drives acceptance in common practice without expecting significant change in behavior. Keeping regulatory challenges in mind, the most logical point of origin could be introduction of crypto-currencies in closed loop environment. By the way I am aware that blockchain and crypto-currency are not the same thing, however I thing crypto-currency is one of the most suitable usage for blockchain and it is the most straightforward way to ensure common adoption. In today’s connected world there are enough use cases with person to person exchange with no need for a banking third party. While the history of Facebook makes me skeptical but social media is one very appropriate use case for implementation of crypto-currency.

Any social media platform relies on two types of users, contributors and consumers (with some overlap between the two categories). In an ideal world contributors should earn for their contribution, while consumers must pay for their consumption. Such a platform can very easily introduce an internal currency, values of which is linked to the value of the platform and same is distributed among the contributors in proportion of their contribution towards the platform. The consumers can earn the currency by either contributing towards the platform, buy from other contributors or buy from the platform itself. If the platform provides enough value to consumers their will be enough demand of the currency thus increasing the value of currency, while if the value erodes the currency will also lose its value.

This is just one such example of a perfect setting where a blockchain based crypto-currency will do much better than the existing banking dependent settlement method. There are many emerging platforms supporting shared economy like Amazon, Flipkart, Uber, Ola, AirBnB, Oyo, Swiggy, UrbanClap etc where real-time settlement clearly is the need and will enhance the platform multi-fold by unlocking the value for the smaller participants in the economy. In today’s set-up one day a Swiggy might start feeling like that restaurant’s business is dependent of them and can come up with practices not entirely in the favour of restaurants. We can already see this happening with restaurant bodies protesting against Zomato, drivers protesting against Ola, hotels protesting against MMT and Oyo etc. This is because platform has too much power over the entire ecosystem making the entire set-up unfair for the smaller participants. An alternate platform built using smart contracts between participants ensuring real time settlement would be a much better and fair option.

Another argument in favour of blockchain is the incompetence or unfairness of banks over the years. Banking system has been in operation for centuries, however with all the advancements in technology their cost of managing money is consistent at around four percent. On top of that their insistence on charging customers for everything, even essential services makes the need for an alternate imminent. I recently encountered one bank (one of the largest private sector bank in India) whose credit card hotlisting helpline is a premium number and customer has to pay extra for using the same. Most of the banks have fees/charges for every type of interaction with the bank. If it wasn’t for RBI customers were even charged for using ATMs (even today there are charges beyond a particular frequency). Banks charging customers for account access is similar to shopping malls charging for parking or carry bags, both are unfair but both happen without any check because people in general accept it and move on. There are better ways to manage the situation but its lack of intent or imagination that they end up choosing the easier (direct) path to revenue than coming up with more customer friendly way. To top it all recent cases of corruption and incompetence across many banks have brought the trust among common public at all time low.

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