The technology most likely to change the next decade of business is not the social web, big data, the cloud, robotics, or even artificial intelligence. It’s the blockchain, the technology behind digital currencies like Bitcoin.
Blockchain technology is complex, but the idea is simple. At its most basic, blockchain is a vast, global distributed ledger or database running on millions of devices and open to anyone, where not just information but anything of value – money, titles, deeds, music, art, scientific discoveries, intellectual property, and even votes – can be moved and stored securely and privately. On the blockchain, trust is established, not by powerful intermediaries like banks, governments and technology companies, but through mass collaboration and clever code. Blockchains ensure integrity and trust between strangers. They make it difficult to cheat.
In other words, it’s the first native digital medium for value, just as the internet was the first native digital medium for information. And this has big implications for business and the corporation.
Much of the hype around blockchains has focused on their potential to fundamentally change the financial services industry – by dropping the cost and complexity of financial transactions, making the world’s unbanked a viable new market, and improving transparency and regulation. Indeed, it is already having a big impact on that sector. However, our two-year research project, involving hundreds of interviews with blockchain experts, provides strong evidence that the blockchain could transform business, government, and society in perhaps even more profound ways.
In the early days of the web, many management thinkers, present company included, speculated that the internet would reduce companies’ internal and external transaction costs, especially the cost of search, coordination, and communication. Surprisingly, however, the internet had only a peripheral impact on corporate architecture, falling short in materially dropping many transaction costs in business.
As we enter the second generation of the internet, which focuses on value as well as information, blockchains may radically drop many transaction costs. For example, a global searchable database of all transactions would dramatically lower the costs of search. Smart contracts (software programs that self-execute complex instructions) on blockchains will plummet the costs of contracting, enforcing contracts, and making payments. Autonomous agents (bundles of smart contracts acting like rich applications) on the blockchain hold the promise of eliminating agency and coordinating costs, and can perhaps even lead to highly distributed enterprises with little or no management.
Consider the music industry, where intermediaries capture nearly all the value and artists get paid last. Now, companies like Mycelia, founded by Grammy-winning artist Imogen Heap, have developed intelligent songs with smart contracts built in, which enable artists to sell directly to consumers without going through a label, financial intermediary, or technology company. This means that royalties and licensing agreements execute automatically and instantly—and artists get paid first. Spotify, Apple, Sony Music and other massive media companies stand to lose or gain depending on how quickly they embrace this technology.
Blockchain technology can also take networked business models to a new level by supporting a whole host of breakthrough applications: native payment systems that run without banks, credit card companies, and other intermediaries will cut cost and time from transactions. Reputation systems built on social and economic capital and controlled by individuals, rather than by intermediaries like rating agencies and credit rating services, will change the dynamic between consumers and companies. Trustless transactions, where two or more people need not know nor trust each other to do business, will be feasible.