Our economic, legal, and political institutions’ defining structures include contracts, transactions, and the records of those activities. They establish organizational boundaries and safeguard assets. They establish identities, confirm them, and record events. They control how communities, organizations, governments, and people interact. Management and social activity are guided by them. However, the bureaucracies set up to oversee these essential instruments have not kept up with the digital change of the economy. They resemble a Formula 1 race vehicle being stuck in rush-hour traffic. The way we govern and uphold administrative control must alter in the digital age.
Blockchain claims to provide the answer to this issue. Blockchain, the technology behind bitcoin and other virtual currencies, is an open, distributed ledger that can effectively record transactions between two parties in a way that can be verified and is permanent. It is also possible to configure the ledger itself to initiate transactions automatically.
With blockchain, we may picture a world in which contracts are encoded in computer code and kept in open, public databases that are secure against erasure, modification, and revision. Every agreement, procedure, task, and payment in this world would have a digital record and signature that could be identified, verified, saved, and distributed. Lawyers, brokers, and bankers may no longer be required as intermediaries. There would be little friction as people, groups, machines, and algorithms freely transacted and interacted with one another. This is the blockchain’s enormous potential.
In fact, the assertion that blockchain will transform business and reshape firms and economies has been heard by almost everyone. We are excited about its possibilities, but we are concerned about the hype. We are concerned about more than just security vulnerabilities (like the 2014 collapse of one bitcoin exchange and the more recent hacks of others). Our knowledge of technological innovation tells us that many barriers—technical, sociological, organizational, and even governmental—will need to be removed if there is to be a blockchain revolution. Rushing into blockchain innovation without first considering how it is likely to catch on would be a mistake.
We think it will be many years before the industry and government truly undergo a blockchain-led transformation. This is because blockchain is not a “disruptive” technology that can quickly overwhelm established companies and assault old business models with a lower-cost alternative. Blockchain is a fundamental technology that could lay new groundwork for our social and economic institutions. Although there will be a huge impact, it will take decades for blockchain to permeate our social and economic systems. As waves of technical and institutional change acquire strength, adoption will take place gradually and steadily rather than all at once. In this post, we’ll examine that realization and its strategic ramifications.
Adoption Patterns of Technology
Let’s consider what we know about technology adoption and, in particular, the transformation process characteristic of other foundational technologies before diving into blockchain strategy and investment. The adoption of TCP/IP (transmission control protocol/internet protocol), which set the stage for the creation of the internet, is one of the most pertinent examples of distributed computer networking technology.
When it was first introduced in 1972, TCP/IP only had one application: it was used to power e-mail among researchers on ARPAnet, the U.S. Department of Defense’s forerunner to the commercial internet. The “circuit switching” telecommunications architecture that prevailed prior to TCP/IP required connections to be made in advance and maintained throughout an exchange. Telecom service providers and equipment manufacturers had spent billions constructing dedicated lines to guarantee communication between any two nodes.
That concept was flipped on its head by TCP/IP. With the help of digitization and the creation of very small packets, each containing address data, the new protocol conveyed data. The packets might travel any path to their destination after they were released into the network. The packets could be disassembled and reassembled, and intelligent transmitting and receiving nodes at the network’s edges could decode the encoded data. Neither extensive infrastructure nor specific private lines were required. Without a centralized organization or entity in charge of its upkeep and improvement, TCP/IP established an open, shared public network.
