Blockchain will transform the world! Many believe that it will impact virtually every business in the manner that the internet did during the previous quarter century. This represents opportunities to investors, not only in altcoins, but also in the industries that will be altered by this digital ledger technology.
At Bitcoin Market Journal, we are excited by these possibilities, but we do not want excitement to cause you to start throwing darts at anything blockchain out of a fear of “missing the boat.” That is why we advocate for making informed investment decisions. With any investment decision, you want to know:
- The “pain points” addressed
- The growth/profit potential
- Key risk factors
- Timeframes in which you may expect to see your returns
As a result, we have compiled a list of the top industries/markets that are likely to be disrupted by blockchain technology. After providing a brief summary of the potential in each, we have ranked them on a scale of 1 to 5 based on the following criteria:
- Simplification/Cost Reduction
- Expansion of Trust
- Data Sovereignty
- Need Fulfillment
To make our list, each industry evaluated needed a minimum rating of 2.5 on a five-point scale.
Here is a look at the process behind our industry rankings by criteria.
The true value of any new technology can often be measured in its ability to lower costs and improve efficiency. For industries in which a sufficient transaction base exists between multiple parties, there are three key components to our Simplification criterion:
- The ability of smart contracts to automate and verify predictable transactions
- Elimination or reduction of intermediaries and their resulting transaction fees, allowing for completion of previously cost-prohibitive transactions
- Efficient delivery of service for compliant transactions
“Cutting out the middleman” has always been a way to save money for both producers and consumers. With blockchain, this can be done with improved performance and increased confidence for all parties. This leads to the next criterion.
Expansion of Trust
Historically, the expansion of trust has led to an increase in commerce. In environments in which regulation is either non-existent, minimal, or evolving, we evaluate industries from a perspective in which blockchain can eliminate the need for a central authority or third-party validation. Where regulation exists, we look at market compatibility with the regulatory environment.
Further, we investigate the value of increasing transparency. This encourages peer-to-peer transactions and mitigates risks of non-compliance. Finally, we explore the potential for the members of a community to align their interests and engage in self-reinforcing activities that expand and improve the blockchain.
To enhance commerce, an industry must strike a proper balance between transparency and privacy. As a result, we will next explore data sovereignty.
Data has been referred to as “21st Century gold.” Blockchain enables the creation of decentralized, immutable data records. In theory, these records are available to everyone who participates in the blockchain, and they can be retrieved quickly to support verification.
Because this information is not contained in one central repository overseen by a central authority, there is no “honey pot” that is easily targeted by hackers. Certain industries place a higher value on safeguarding privacy due to differences in the stakes involved.
Significant transformative potential exists in industries in which individuals can own and control access to their personal data. In this scenario, they can restrict access of those who would use their personal information to their detriment, and sell their data for profit to those who would use it productively. This is markedly different from the current situation in which “The Four” (Amazon, Apple, Google, and Facebook) actually control and profit from a wealth of personal information.
In evaluating the viability of any business opportunity, it is essential to address significant and identifiable “pain points.” Building on the need for a sufficient transaction base, we begin by analyzing the size of the potentially impacted segment of the market.
In relation to simplification, we also evaluate the potential for utility optimizing calculations by coordinating transactions between multiple parties. A great example is supply chain management—the numerous contractual relationships must be executed in a timely and orderly manner with the resulting terms being enforced; otherwise, the system breaks down.
Another related factor is the importance of provenance. In other words, what are the origin and complete history of a product? Industries in which potential hazards exist from defective or contaminated products will find additional merit in blockchain technology. Buyers and sellers will both benefit from improved access to information.
Next, we address the importance of speed of delivery/execution, as well as overall timeliness. In some industries, a first-mover advantage is important. In others, it may be better to sit back, let the market develop, and learn from the mistakes of others. Google and Facebook are classic examples. In some industries, it may make sense to seek outside investment and take the plunge, while in others, it makes more sense to grow organically and begin with transferring non-essential activities onto the blockchain.
Finally, blockchain can fulfill needs in emerging markets. Some of those needs are connected to the expansion of trust in the absence of a central authority, while others are more closely related to providing low-value services in a cost-effective manner.
In the supply chain, a robust infrastructure must be in place to support the successful execution of successive transactions amongst multiple parties. For our analysis, we determined in which industries the dominant players would have the financial resources to build an infrastructure that is scalable, secure, and allows interaction amongst organizations with differing technologies.
For another perspective, a team from the University Pennsylvania’s Mack Institute created an evaluation matrix based primarily on two criteria, the Interparty Transaction Index (ITI) and the Infrastructure Readiness Index (IRI). (To read the article and download the white paper, click here.)
In addition to building the infrastructure, the key stakeholders must work together to establish standards of conduct in the absence of regulation and work with regulators to minimize any potential detrimental impact from overbearing regulation. At Bitcoin Market Journal, we share in this mission.
Next, we evaluated potential threats. One concern is vulnerability to powerful, entrenched incumbents, who are threatened by the change. Any groups that may be disintermediated by this new technology, if they are unwilling or unable to adapt, may actively work to block its adoption.
Although less obvious, but potentially as threatening, is the resistance from organizations, especially those that are already profitable, that must overcome internal inertia. Despite significant blockchain potential, they may not have the necessary risk tolerance or long-term perspective to cannibalize their current profitable activities to position themselves for future success.
Finally, despite the exuberance surrounding blockchain and the blockchain clubs popping up at the world’s leading universities, there is still a shortage of talent. A clear need may be present and identified, and sufficient funding may exist to support a venture to meet those needs, but without the human capital to implement the project, it will not happen.
At Bitcoin Market Journal, we hope that you will use this analysis as a framework for evaluating your investment opportunities, not only in the context of the specific token project, but also in terms of its relationship to its overall industry.
For a continuing in-depth analysis of the digital asset landscape, take a moment to subscribe to the Bitcoin Market Journalnewsletter today.
Evan Karnoupakis is a former management consultant, IT consultant, educational consultant, and mathematics specialist. He holds an MBA from the Wharton School of Business and an MAT in Integrated Mathematics from Kent State University. He has provided consulting services in the following industries mentioned in this article: Banking, Education, Energy (Nuclear), Financial Services, Government, Media, Transportation, and Utilities.