Curate Book Club: Bubble or Revolution?

Do you know what blockchain is? Not heard of it, or read an article about it, or have a vague sense that it will disrupt traditional business systems, but actually understand it enough to explain it to someone else? How about cryptocurrency? Maybe you know that it’s a kind of digital money, that Bitcoin is one, and that it may or may not be completely above board — possibly even connected to the underground economy — but do you know who uses it and how it works?

Yeah, neither do a lot of people.

Neel Mehta, Adi Agashe, and Parth Detroja — product managers at Google, Microsoft, and Facebook, respectively — want to change that. “Blockchain and cryptocurrencies, collectively known as crypto, are among the most consequential and yet least understood new technologies of our time,” said Agashe, who with Mehta and Detroja has written Bubble or Revolution? The Present and Future of Blockchain and Cryptocurrencies. “Most public conversations about crypto are dominated by enthusiasts saying crypto will tear down banks and governments and pundits saying crypto is nothing but a scam. Not many people pause to break down how exactly these technologies work and what real potential they have.”

Who is your intended audience for this book?

I think that it’s essential that technologists, entrepreneurs, business leaders, and even casual observers understand these technologies — so we decided to write a book about them. In Bubble or Revolution?, we break down the building blocks of blockchains and cryptocurrencies; explore their strengths and weaknesses using case studies; dive deep into their social, political, economic, and technical implications; and gain insight into their futures from our exclusive interviews with dozens of tech industry leaders.

What is your simple, go-to definition of a blockchain? How about a cryptocurrency?

The big technological innovation behind Bitcoin, and the thing that makes it so unique, is the blockchain — a public, shared list of every Bitcoin transaction that’s ever happened. In Bitcoin, instead of a single entity like a bank verifying that a transaction happened, everyone collectively agrees that a transaction happened. At a high level, whenever you send someone bitcoin, your payment gets added to a giant shared list of all past transactions — known as a shared ledger, or blockchain. It’s as if all payments were stored on a giant public Excel spreadsheet and anybody could add a “row” for a payment, but nobody could erase or change a row once it was added.

This ledger is the official record of all past payments. Everyone can see every past transaction and thus prove to themselves that the payment happened. Because the ledger is shared, no one person owns it, and nobody can censor it. And, if at least one person has a copy of the ledger, it’ll never die.

How do you define the relationship between blockchains and cryptocurrencies? Is it basically that the former is a technology that powers the latter?

Yes, exactly — we just talked about Bitcoin, the first cryptocurrency or digital currency, which uses blockchain technology. But Bitcoin isn’t the only cryptocurrency in town. There are well over 2,000 competing cryptocurrencies, known as altcoins, each with its own features and its own blockchain for recording payments. Some are specialized for certain kinds of payments, others aim to build a platform for apps, and others just seek to improve on Bitcoin’s flaws. Altcoins have gotten bigger and bigger over time — Bitcoin controlled 90 percent of the cryptocurrency market back in 2017, but is now just over 65 percent.

We don’t seem to hear about cryptocurrencies — specifically Bitcoin — as much as we did up to a year ago. Has it gone away?

So, let me give some context. In 1929, the American stock market plunged 40 percent in one month, sparking the Great Depression. But that’s nothing compared to early 2018, when the value of Bitcoin plunged 70 percent in one month! And if you thought that Facebook’s loss of 20 percent of its market cap in a single day in July 2018 was bad, Bitcoin shed 25 percent of its value in one day in December 2017!

This era, which we for lack of an official term call “the big crash,” was marked by an upsurge in media attention and novice investors getting into Bitcoin, with some even plowing their entire life savings into the currency. With this sudden influx of money, attention, and investors, some of Bitcoin’s cracks started to show. Since the hype has died down, there has been more innovation happening in the background.

Do you have any thoughts about what blockchain in particular might mean for hotel companies? How might they make use of this technology?

I have seen a lot of projects in this space that are using blockchain for loyalty programs or recreating existing two-sided markets like Airbnb or Expedia using blockchain. Let’s dive into the decentralized Airbnb example. The way it currently exists, Airbnb is a central company that runs servers which host the app data on listings and bookings. So, every homeowner who wants to list their place pays a fee to Airbnb, losing out on profits. Similarly, consumers looking to stay a few nights at a listing pay a service fee for using Airbnb to find their temporary stay.

Now, imagine a decentralized version of this where the platform is built using Ethereum and smart contracts. The platform could allow renters and homeowners to directly communicate, since the smart contracts “automate” this process. The platform could still take a small fee, but it would be considerably cheaper for both sides.

The first problem is that this setup doesn’t require blockchain technology — Airbnb could do this as is by automating the payments and booking process in the same way a smart contract does and charge more, because users trust Airbnb and their vetting process for homeowners. The second, larger problem is that this platform suffers from a chicken-and-egg problem. You’d only join the decentralized Airbnb if other people were already using it, but if everyone thinks like that, nobody will join the platform.

Lastly, from a user-experience perspective, Airbnb’s ease of use is part of its value. So, is it likely that people will build a decentralized version that runs as smoothly and intuitively for renters and homeowners, for free? Who would maintain this, and how would they be compensated? Will it be yet another ERC-20 token? This is moving away from smooth and intuitive.

These problems exist for most decentralized two-sided marketplaces, not just Airbnb. But a good rule of thumb to remember is that people are like electricity — we will choose the path of least resistance.

In general, are most companies paying enough attention to these technologies?

When you’re thinking about the future of blockchains, it’s helpful to look at public and private blockchains separately, since they are used for very different purposes and encounter very different challenges. Private blockchains, at a high level, help organizations optimize the flow of information and goods through processes they control. When Walmart built a private blockchain for its leafy-greens supply chain, it wanted to better understand how vegetables moved throughout its supply chain. When Xbox created a private blockchain for royalty payments, it wanted to automate the movement of money between customers, publishers, and contractors. And when the UN started tracking refugees’ digital “credits” on a blockchain, it wanted to better track how many supplies each refugee could still buy. In all these cases, the organizations owned the whole process — Walmart’s supply chain, Xbox’s royalty payment scheme, the UN’s aid program.

Public blockchains, at a high level, aim to track the ownership and movement of assets held by the general public. Cryptocurrencies track the movement of people’s money, BandNameVault tried to track trademark ownership, Filecoin tracks the “rental” of people’s computer storage, and Namecoin tried to track the ownership and sale of website names. In all these cases, the blockchains’ creators tried to go around centralized power brokers: Cryptocurrencies want to cut out banks and governments, BandNameVault wanted to go around national trademark offices, Filecoin and IPFS want to avoid giant websites like GeoCities or MySpace, and Namecoin wanted to go around traditional domain registrars.

In short, private blockchains are process optimizations imposed from the top down, while public blockchains are radical new ways to track valuable things, grown from the bottom up. They’re very different ways of using the same technology.

What are the main implications of these technologies for businesses? Are they disruptors?

Blockchains are just tools, and as such, they shine when they have to solve technical problems like automating a supply chain. They’re great for improving highly inefficient, complex systems that are currently based on old technology or paper. But by themselves, blockchains can’t reshape society in the way that many public blockchain apps hope to do — blockchains are just tools. To drive social change, the people behind public blockchains need to do the difficult “people” work of building communities, gaining media attention, and working with governments to create policies. So far, at least, startups working on public blockchains have been very excited about building the technology but less excited about doing the people work.

For this reason, I am more bullish on private blockchains. Private blockchains have it easier because they have such a limited scope. Instead of trying to reinvent how society tracks the ownership of land or art or intellectual property, they are content with upgrading the technology behind a financial clearinghouse. In short, they don’t have to deal with people problems — they just need to solve technical problems, and they do so admirably.

Categories: Revenue Management
Insight Type: Articles