Blockchain for Business and Product – Part 1: Mental Model

There is currently a lot of hype around cryptocurrencies, blockchain technology, and decentralized consensus systems. There is also a great deal of confusion around why the hype exists, what the unique value of these systems is, and how one might jump into this ecosystem to try their hand at building something. This, in general, makes it difficult for industry professionals to separate signal from noise.

This blog series is aimed at describing some of the core businesses and products that have arisen in the tech industry, given the recent advances in decentralized consensus mechanisms, so that individuals focused on building new products and businesses can see the landscape quickly, get their hands dirty, and build something new.

This first article will establish some baseline metaphors for the current blockchain ecosystem. The second article will walk through the system design for one business in this space — cryptocurrency mining.

A blockchain is like a component of a business, but decentralized. Right now, people are focused on building components for banks and financial systems.

Banks are a particular type of business and product that provide many features to their users. For example, as a user of a bank, you can store your money in a place that’s more stable than under your mattress, as well as send and receive money with other people without mailing it. In order to make the latter feature work, banks must perform a series of administrative tasks that assure the money transfer has been completed correctly. Fixing errors in this process, removing inefficiencies in the administrative tasks, or changing how this business component fundamentally operates are several ways to make everything better and improve this feature of the bank for its users.

Cryptocurrency mining, at its core, focuses on improving fault tolerance and removing security risks in a bank’s money transfer system. Instead of having a centralized record system at the bank, where every employee doing administrative tasks is modifying the same centralized record system, imagine there is a room full of people doing their own administrative tasks on their own separate record systems. These people also sync with each other and share the results of their work, so that they all know the transactions that are happening and can keep each other accountable. This sharing is also public, so customers can hold the bank accountable. If one record system fails, there is still a room full of other systems working and keeping it running. If a bad actor tries to falsify the records of one person, it’s easily detected because everyone else can share the record systems and detect the anomaly.

These changes in the way the business component works makes the product better and delights users more, but they are mostly invisible to bank users. If users go to the bank and send money, they are mostly focused on the process being correct and fast. If it happens to be fault tolerant and more secure, that probably matters as well, but how those aspects are achieved operationally is less important — these things matter to those inside the business.

The reason cryptocurrency users, as bank users, are also so focused on these banking mechanisms is that they also want banks to be completely decentralized. So, they are building systems for two core users — themselves as bank patrons that want to use good financial systems, and themselves as the bank itself that wants their systems to be run by a community. But the systems being built can be effective as improvements to banks just as much as creating and improving a fully decentralized bank.

Supporting a specific cryptocurrency is supporting a specific type of economy. Support using your values.

Banks allow you to perform many actions with your money, like transferring it to others, but these operations are always performed within a specific currency. Even if there are multiple currencies involved, you are leveraging systems that do the work of transferring between currencies.

Holding onto specific currencies is an implicit statement that you think the currency of the associated economic system is strong, and that you believe the mechanisms of those economies will be more robust and successful. Every currency is associated with a country or set of countries, so you are also implicitly aligned with how that country runs itself and its monetary systems. For example, if you hold US dollars (USD), then you believe that America’s economy will keep growing, that the taxation system is acceptable, that the amount of supply and trading rates are acceptable, the way they control inflation and new currency generation is acceptable, and many other economic factors.

Cryptocurrencies all have different economic systems (mostly separate from countries, although some are tied to central banks), and putting your assets in them is an implicit assumption that their economic system is better and will grow long term. Just like real currencies within government economic systems, cryptocurrencies differ in their economic structure. These differences can include the privacy of asset holders and their account values, governance of the economic system, how the mining system works (how their banking tasks work), how secure their system is against bad actors, how money flow is regulated, how regularly new currency is added to the supply, and much more.

For example, Monero is a specific cryptocurrency that has a mission and economic system that many people value. Monero is a cryptocurrency that has private accounts, robust security against bad actors, a mining system that is more accessible for people wanting to contribute, and many other advantageous features. For more information on Monero, check out this book.

Conclusion

Leveraging blockchain technology, in many cases, is just reorienting your mindset on how your data and assets are handled — are they centralized or decentralized? How does the data synchronize between these systems? Is the system you built actually tolerant to people disrupting the network connections?

Supporting specific blockchain technologies or cryptocurrencies often involves understanding the economic dynamics and what properties those systems value. Which ones line up with your world view?

I encourage everyone to think through all of these avenues to understand how business in this new era will operate, which ones you should be a part of, and how you can continually make them, and yourselves, better in the process.