The Extraordinary Opportunities Blockchain Promises

The Intelligent Blockchain Investor

The Extraordinary Opportunities Blockchain Promises

Let’s continue our analysis of The Game Being Played by diving into some of the proposed opportunities in the blockchain universe.

The Game Being Played

Like any other opportunity, blockchain is an investing universe with its own rules and ideas. There’s things which ‘just make sense’ in the context of blockchain, and there’s other things which ‘just don’t work’.

To help explain some of the larger concepts in this unique an exciting investing universe, I’ve broken the analysis of The Game Being Played into four components, spread across two articles. The four components are:

Blockchain Technology Basics
Opportunities Promised by Blockchain (This Article)
Blockchain Challenges to Overcome
Future Moves in Blockchain

Quick Note. This information should not be considered investing recommendations or investment advice. It is simply a mental model which I’ve used in my own life and desire to share with others. Consider your own circumstances and do your own research :)

The Opportunity

To help illustrate the opportunity, have a read of this hypothetical scenario.

Current System: The Global Logistics Company

Imagine a world where we have a Global Logistics Company. We’ll call it GLC for short. This company delivers to 60% of the countries in the globe. You desire to deliver a package to one of the companies they cover, so you contract GLC for delivery. So far so good.

You have to pay extra for tracking of the parcel (using GLC’s proprietary and non-accessible system), but that’s ok because the parcel is important.

Then comes the inevitable moment when something goes wrong. Your package goes missing. After repeated calls to GLC talking to a helpful but organisationally limited customer service representative, you’re informed that your package has somehow embarked on a world tour and has ended up in a remote corner of the world. Their system goes down, or someone, somehow messed up entering the data.

Yuck :(

Regardless, it’s multiple weeks before you see your package again, banged up and torn from its unexpected, frustrating and frankly inexplicable adventure. While you could technically seek restitution for the impact, there’s around 100,000 pages of small print for you to work through, let alone their absurdly complex ‘Customer Complaints’ website.

You think to yourself: “There’s got to be a better way!”

End Scenario ❤

Some observations:

We had a centralised trusted entity for delivery. GLC controlled all access to every stage of the lifecycle, including onboarding, transport and delivery. You couldn’t hire someone else to go and pick up your parcel from the remote location in the world because that is ‘GLC’s’ information (despite it being your parcel!)
There is no neutral method of analysing GLC’s relative efficiency and effectiveness. GLC controls access to the tracking information for ‘their’ customers. Presumably any other competitor is doing the same. Developing a neutral system to demonstratively prove the relative efficiency/effectiveness of GLC and competitors is either cost prohibitive or outright impossible.
We have a centralised economic model. GLC’s ability to make money is determined by its ownership and profit extraction from the delivery network they have built up. With no way of objectively determining GLC’s relative efficiency/effectiveness, there is no way to incentivise GLC to consistently improve their model. Without diving into the economic theory underpinning this kind of scenario, history demonstrates that this almost always results in less efficient outcomes for consumers. It is in GLC’s rational self interest to maximise their revenue, rather than efficiently meet their customers needs, provided they are good enough to survive.

There’s a few follow on aspects we might be able to extrapolate from this scenario:

If it’s difficult to trust GLC to deliver a parcel, then there is no incentive for other organisations to develop more sophisticated logistics systems where reliability is absolute.
If GLC is sufficiently large, they create a barrier to entry for which it is difficult for competitors to enter. This is especially true when there is no globally objective performance tracking mechanism.
It is difficult to build new and more efficient models of logistics upon GLC’s systems because they hold all the keys. As established earlier, it is not in their best interests to release this information, even if that would be overall better for consumers.

Blockchain Example: Awesome Logistics Blockchain

Imagine a world where we have the Awesome Logistics Blockchain (ALB). Any company that wants to deliver parcels uses this blockchain to track their activity.

You desire to make the same delivery above, so you log on to the Deliver Anywhere Efficiently (DAE) website, select your destination and opt for the gold standard solution at an extra cost. DAE figures out that four stages will be required.

In the background, an autonomous script (stored on ALB) analyses your delivery requirement, then selects carriers for each stage of the journey. The carriers are selected based upon their proven efficiency and effectiveness from the ALB. Your parcel is assigned a non-fungible token (NFT) and your funds are held in a smart contract, to be autonomously paid to each carrier at the completion of their stage of the journey.

Inevitably your parcel gets lost at stage three of your four stage journey. You immediately receive a text message advising you that carrier three failed to complete their delivery, and that as per the terms of your smart contract, they will not be paid. While this is happening, DAE identifies the issue from their blockchain feed and automatically finds another carrier to pick up your lost parcel. Per the terms of your smart contract, this new carrier is paid upon the successful completion of stage three of the journey. Your parcel arrives safe and sound with only a few hours delay.

Let’s examine what happened here:

Your life became much simpler. The scenario above allowed a variety of different innovations to take place. We had a series of autonomous interactions which resulted in the same (or better in this case) outcome as the centralised system, but in a way that was significantly more efficient for all participants. We even automated the reaction to a lost parcel.
We incentivised good behaviour. The carriers who delivered your parcel got paid (and earned some more points on their completion rate). The carrier who lost your parcel didn’t get paid. What do you imagine the impact of this would be on the participants?
We expanded the market. With a common system in place, we expanded the number of participants. Combined with an effective incentive model, we created a situation with more competition, resulting in a better outcome for you, the consumer.

We could extrapolate some longer term impacts from this model as well:

With an immutable, transparent record of performance available, competitors looking to enter the market could identify underperforming companies/areas and seek to enter the market there. The result would be an improvement in delivery/success rates.
Companies which consistently outperform could charge premium rates for their services, creating even more incentives for them to be efficient and effective.

The hypothetical scenario above illustrates some of the world changing ideas blockchain enthusiasts get so excited about.

Pause for a moment to consider just how game changing this could be!

Expanding on the Opportunity

Here’s a few other things to consider about blockchain and The Game Being Played:

Incentivised Economic Models

Blockchain promises to enable new economic models. The technology promises to create all the preconditions for effective reward and recognition, such as:

A consistent measurement system
A neutral measuring method
Transparent reward / penalty criteria

With rewards and penalties able to be automatically applied based upon pre-defined criteria, blockchains can be used to autonomously incentivise desired behaviour and de-incentivise (or actively penalise) un-desired behaviour. All participants are bound by the same rules and systems.

If the promise is proven accurate, it has the potential to revolutionise many industries.

Where could you imagine this happening?

Expansion of User Base

Blockchain promises to democratise access. Many blockchain projects work to simplify their access to the point where all that is required is access to the internet and a simple web browser.

Both of these are themselves in the process of being expanded, simplified and made cheaper (more on that in a moment).

Economic history demonstrates that any time access is expanded, new wealth, innovation and opportunity is created. We see this in the creation of the Model T Ford, railways and more recently the internet.

If the promise is proven accurate, the overall size of the global market is likely to dramatically expand. With the influx of new participants, there is likely to be significant new innovation and opportunity.

Creation of New Opportunities

Blockchain promises to identify entirely new innovations. For instance, in logistics, the ability to track every component of a device creates the possibility for massively improved logistics systems. There’s already a number of projects exploring what this would look like.

There’s many other innovations already being identified. Things like web browsers which decentralise your entire computing model so that you no longer need a powerful (aka expensive) computer. Payment models where you only pay for what you need, not just a monthly subscription which you might not even use. New ways of achieving the desired consumer outcome using the new economic models being experimented with.

Just like the internet created entirely new industries (including blockchain!), , if the promise is proven accurate, the size of the blockchain market is likely to be significantly larger than the size of the current market.

Autonomous Systems Foundations

Blockchain promises to create the foundation for an autonomous future. With blockchains ability to store data of any kind a whole new level of autonomy becomes possible.

Using things like Smart Contracts and Non-Fungible Tokens, we can create entire systems of ‘if this then that’ behaviours. Simple things like: “if this parcel passes this checkpoint, do this interaction” can be expanded to entire logic chains which currently have to be performed by humans.

When you consider a number of other technological innovations coming to market, you suddenly realise that there’s a huge opportunity beckoning.

Ahem. Anyways, if this promise is proven accurate, this means that the markets we can already see are likely to become significantly more efficient and effective…and we also have a built in way to measure this.

Imagine if you invested in a company which nailed it…

Dovetailing with Other Incoming Technology

The final aspect I’ll outline is actually independent of blockchain. Understanding and connecting these other advances with the various promises of blockchain will be what separates the great investors from the merely successful.

Here’s a very quick overview:

Global Internet Connectivity. Blockchain requires connection to the internet to be effective. Anything which expands the size, effectiveness and penetration of this connection works in our favour. Two projects which stand out are StarLink and the Helium Network. Both provide relatively cheap hardware and are already delivering on their promises.
Cheap Computing. Internet access is one thing, but it’s pretty useless if you don’t have a way to interact with the internet and process data. Therefore, anything which decreases the cost of this computing and makes it more available works in our favour as investors. Two projects which are already delivering in this area are Arduino and Raspberry Pi. Both are continually decreasing the cost of computing and creating new onboarding ramps for more users.
Individual Identification of Items. To connect a virtual construct such as a NFT to the physical world requires us to have a reliable and effective identification mechanism. We need to know that item X corresponds to NFT X or it doesn’t work. Fortunately for us as investors, we have IPv6 and RFIDs. Internet Protocol version 6 (IPv6) has already been standardised globally and is in use, while Radio Frequency Identification chips are well established.
Reliable Power. Internet access, computing and interaction all have one thing they need. Electricity. It’s a precondition to creating a Cyber Centric Universe (no, I’m not talking about the eponymous Metaverse). Anything which allows us to provide reliable power to devices is to our advantage as investors. With the advent of reliable battery technology and various green power technologies (i.e. Solar Power), we have a system which is rapidly expanding to make reliable power available everywhere.

Next Stop: The Challenge

The next stop in The Game Being Played is to explore some of the challenges blockchain is facing.

As always, if you’re enjoying this series, take time to interact. Comments, claps, tweet mentions, LinkedIn mentions and sharing is a great way to interact with a community of people who can add to our exploration. A great way to stay up to date with this series as it comes out is by following me or signing up to our email distribution. A word of caution though — please keep it respectful, fun and polite. We want a safe place to learn and grow ❤

Articles in the Series so Far: