If you’re working on a start-up, now is a good time to work the word “blockchain” into your elevator pitch.
Fueled by interest from media, corporations, academia, and governments, people are seemingly proposing new applications for the technology every day.
But where is the line between buzzword and legitimate game-changing technology?
I don’t pretend to know which specific applications will succeed or fail, but a look at the dizzying array of current start-ups certainly reminds one of past technology bubbles.
Sometimes, in our excitement, we forget the time-tested economic maxim that there is no free lunch.
Blockchain technology, like everything else, involves tradeoffs.
Processing data in a decentralized manner using numerous independently operating computers is generally more complex and expensive than managing a “master” set of data from one source.
To make economic sense, using a blockchain for a given task must involve benefits that outweigh the costs.
Blockchain technology has many potential benefits, but perhaps the one most frequently discussed is the ability to conduct transactions without a central intermediary.
While that is far from the only benefit, blockchains are likely useful in situations where trusting or relying on such an intermediary is problematic.
With cryptocurrencies, there is no government to cause inflation, and no credit card company holding our personal information.
Blockchains also address significant problems with central intermediaries in examples including, but not limited to, the following: When considering the outlook for a blockchain-based startup, do the following thought experiment: Imagine the exact same purpose being fulfilled by a central intermediary.