The era of digitalization and the blockchain promise

The turn of the new millennium marked the transition from the age of industrialization to a new paradigm commonly referred to as the networked society. The proliferation of technology-driven platforms that facilitate every conceivable aspect of our daily lives has forever changed the way we relate with goods and services. The days of encyclopedia for accessing and discovering information before the advent of Google now seem like a very distant past. Cassettes have now been replaced by music downloads, while human relations has moved to social media. We now buy on Konga, Jumia and Amazon, while we commute by Uber and Taxify and lodge through AirBnB. Banking transactions can now be completed with tokens, and toll fees paid by e-tags.

As each piece of the business world continues its march towards digitalization, the roles of intermediaries will need to be redefined and reevaluated. One technology threatening to totally alter the intermediation business landscape and dramatically reduce the cost of transaction is the blockchain. The blockchain technology was introduced in 2008 as part of the proposal for ownership transfer of the bitcoin in which the role of a central authority or intermediary that confirms a transaction was eliminated. This was replaced with a cryptographic, transparent, verifiable, consensual and immutable digital record of transactions.

Although the initial spotlight continues to be on the cryptocurrencies as the bitcoin was the first application of this technology, businesses are now increasingly realizing the transformative power of the decentralized, distributed ledger. The blockchain has the potential to become the standard system of all records of transaction, thereby optimizing the manner in which businesses store both their internal and external records. Imagine a network of businesses, each with its own private record of transactions, which are prone to human errors, and have to be audited and reconciled in the event any entry is contested by the business partners?  With the blockchain system of records, all the business partners will share the same ledger, and each time any party updates a transaction, the same is updated across all the businesses in the network.

There are many use cases that are begging to be optimized, and for which the blockchain technology will be an ideal solution. One of such is stock transactions. Although stock transactions can be executed within seconds, the actual process is not completed till settlement occurs, which can take more than 72 hours. This involves a series of intermediaries that guaranty the assets as it moves from one organization to the other, and their individual records updated. In a blockchain system, the ledger is replicated across the databases of all parties to the transaction, and as each transaction occurs, records of the asset and the value it was exchanged are permanently entered in all ledgers. This process eliminates intermediaries and speeds up the exchange process from 72 hours to just a few seconds.

Another interesting capability of the blockchain is the smart contract. These are digitally signed promises which are automatically executed by software code built on the blockchain technology once predefined conditions are met. The agreements contained therein are recorded across a distributed blockchain network, and at the execution, the records are updated across the ledgers of the parties to the agreement. This will alter the lawyers’ traditional role as trusted intermediaries, and likely lead to the emergence of new business models for law firms.

Although it’s still early days for the blockchain technology, the potential is immense, and the disruption will cut across every industry with varying impact once the regulatory and corporate barriers are surmounted. This technology has the potential to change the fundamentals of the economic ecosystem, and will likely turn out to be the most disruptive technology since the internet revolution.

Olugbenga A. Olufeagba