When the Bitcoin whitepaper introduced blockchain to the world, the intention was to disrupt and change the world’s monetary system and to bring the digital currency revolution forward. While that was the core goal, the make-up of Bitcoin and, by proxy, blockchain, also meant that a few other sectors were in danger of disruption.
Blockchain allows for transparency and anonymity, but crucial to its success and initial uptake is that this new technology is entirely trustless. The global economy had, up until the development of blockchain, been predicated on intermediaries who handle and facilitate money, namely banks.
However, as the Bitcoin whitepaper says, this trustless core of blockchain offers the control and handling of money which can be done through a peer-to-peer network, eliminating the need for intermediaries.
The cryptocurrency space has evolved, and with that evolution has come the new and nuanced blockchain that builds upon the core factors of transparency, anonymity and, most importantly, the trustless nature. In recent times, one of the biggest tools of blockchain has been the evolution of smart contracts, prompting a whole new world of intermediary disruption.
There is little doubt that the idea of middlemen in today’s global economy and society is a flawed system. They add additional time and expense to functions that range from banking to housing, agency and escrow, but with proper blockchain implementation these intermediaries can mostly be eliminated.
Smart contracts and the digital vending machine
While blockchain itself, at a base level, has the potential to impact and aid a number of sectors, especially that of supply chain management and peer-to-peer financial transactions, it is important to understand how smart contracts have evolved, impacting the intermediary job market.
This is because contracts are a large part of our society. We use them in property, employment, finance, and myriad other areas of our day-to-day lives. These contracts, and their creation, enaction, monitoring, and dispute resolution all rely on an intermediary of some sort.
For example, when buying a property there are contracts which are made with the bank for the bond which requires an agreement to be met and matched in order for the transfer to go through. Then, the transfer itself requires notaries and conveyancers to do their bit before the transfer is made. However, the need for these middlemen is not really a necessity if we substitute them for smart contracts.
“[Smart contracts are] ‘digital vending machines’. Anybody with coins can participate in an exchange with the vendor. The lockbox and other security mechanisms protect the stored coins and contents from attackers sufficiently to allow profitable deployment of vending machines in a wide variety of areas.”
Nick Szabo, a computer scientist and inventor of smart contracts and BitGold (the predecessor to Bitcoin) famously described smart contracts as ‘digital vending machines’ – thus laying the foundation for the creation of Bitcoin.
“A canonical real-life example, which we might consider to be the primitive ancestor of smart contracts, is the humble vending machine,” Szabo wrote. “Within a limited amount of potential loss (the amount in the till should be less than the cost of breaching the mechanism), the machine takes in coins, and via a simple mechanism (which makes a freshman computer science problem in design with finite automata) dispenses change and products according to the displayed price.”
“The vending machine has a contract with the bearer. Anybody with coins can participate in an exchange with the vendor. The lockbox and other security mechanisms protect the stored coins and contents from attackers sufficiently to allow profitable deployment of vending machines in a wide variety of areas.”
“Smart contracts go beyond the vending machine in proposing to embed contracts in all sorts of property that is valuable and controlled by digital means. Smart contracts reference that property in a dynamic, often proactively enforced form, and provide much better observation and verification where proactive measures must fall short.”
This explanation, when compared to an example of a shop, really gives insight into why blockchain and smart contracts can make intermediaries obsolete.
If, next to the vending machine, there is a shop with an assistant, a person could hand over coins to the shop assistant in exchange for goods. However, this can take longer, and some of those coins will go into paying the assistant – and here is the crux of why blockchain is a true disruptive force for intermediaries.
What sectors are susceptible to Blockchain disruption?
So, other than shop assistants, as in Szabo’s explanation, who else is at risk to disruption in their position as an intermediary?
One of the biggest sectors in the areas of blockchain has to be banking, especially with the standard-bearer of blockchain being Bitcoin with its focus on money and finance. Much has been made about the threat that the likes of blockchain offers the banking sectors, and why it should be worried about disruption.
But in terms of pure blockchain disruption of intermediaries in banking, it is areas such as payments, clearance and settlements, fundraising, securities, and loans and credit which could be susceptible to blockchain integration.
And that is what is important to note, that the banking system is no longer resisting banking, it is looking to get on board in the nascent phase.
Farzam Ehsani, a former blockchain lead at Rand Merchant Bank, explains that his role at the bank was created out of this need to understand how they can disrupt inefficient and intimidatory positions.
“All banks have realised that they need to get onto this blockchain boat. I don’t think many banks necessarily understand where the boat is going, but they realise that this is a development that is taking off and that if they want to be on this journey that everyone is going on, they need to be on the boat,” Ehsani said.
“We will not see a reduction in the overall number of jobs, but we will see a transition of the job types from the ones we currently know today to the new ones that will be created tomorrow.”
“Many are predicting that jobs will disappear because of the technological explosion we're seeing in the world. I have a different take: we will not see a reduction in the overall number of jobs, but we will see a transition of the job types from the ones we currently know today to the new ones that will be created tomorrow.
“This is nothing new. At the advent of any technological change, jobs shift. We no longer have human alarm clocks, human lamp lighters, human pinsetters for bowling alleys or switchboard operators physically connecting phone calls. However, today we have many new job types that people from the past could ever have imagined.
“Regarding banks, banking is certainly changing but the need to have a mechanism to allocate capital from where it exists in abundance to where it is needed is a function that isn't going away. Yes, it is becoming more automated, but there will be a host of jobs surrounding this and other advances that will emerge.”
Ehsani went on to explain that the fightback against this change from banks should not be because they feel that it is a threat but that the threat to them becoming obsolete will, instead, come internally.
“Banks have one major threat, and it's internal, it’s one of complacency. If banks have the right approach in recognizing that the financial landscape is changing and to change with it, they are well positioned to benefit from the future. However, if they believe the status quo will endure indefinitely, they are in for a big surprise. Things are changing and they're changing fast.”
Banks are looking at the power of blockchain to aid with payments as a major part of their streamlining, as the current system is difficult, expensive and slow, especially for cross-border payments. Companies like Ripple, in particular, are trying to address this as it would allow for money to be sent for a fraction of the fee, and in minutes, rather than days or weeks.
Clearance and settlements
This aspect of banking is also tied to payments, and has many of the same issues too. Today, a simple bank transfer, from one account to another, has to bypass a complicated system of intermediaries, from correspondent banks to custodial services, before it ever reaches its destination.
Within the blockchain, and through smart contracts, the clearance and settlements can happen instantly, and immediately the smart contract checklist is completed.
Loans and credit
This aspect of banking is also in dire need of change as it is a system of perpetual debt as many people are granted loans and credit on the basis of the human judgement of an intermediary, such as an underwriter. However, with smart contracts, loans and credit can be calculated and determined if they are viable and if they can be enacted they can be confirmed or denied in minutes.
Not just the banks
Intermediaries exist in all aspects of our lives, and while the banks are primed for disruption, many other sectors are in dire need of a shake up, starting with the middlemen.
The housing market is one of the biggest markets on the planet, yet it is also one that has had its recent difficulties, including collapse. Much of this has to do with the confusing system of banks, agents, corporations and property owners. But this system would be considerably more streamlined if homeowners could work with buyers in a simple straight line - with blockchain being the path on which the transaction takes place.
Documents, legal requirements, finance and even the bond can all be accomplished on the blockchain, and can cut out a lot of wasted time, and extra expense.
Again, much of blockchain's possibility has been predicated on Bitcoin, and due to its nature as a digital asset it has become a disruptive force for those who want to invest. The stock and commodities market is burdened with complex obstacles and brokers which makes it quite exclusive and inclusionary.
Now though, because of blockchain’s trustless nature, people are able to invest in Bitcoin as the asset simply by using a smartphone. There are no brokers, no banks and no middlemen to facilitate or aid trading since it is done entirely by the individual.
And, as blockchain extends its reach, other stocks and commodities are being tokenized on the blockchain, opening up a new world for investors.
Another sizeable area where blockchain is being viewed as potentially life-changing is its ability to disrupt the voting process, especially at governmental level. There have been experiments in places like Sierra Leone where a blockchain election was conducted side-by-side with a normal election, and its efficiencies shone through.
“There have been experiments in places like Sierra Leone where a blockchain election was conducted side-by-side with a normal election, and its efficiencies shone through.”
But, more than being efficient, the removal of human intermediaries from the voting process eliminates not only mistakes, but also corruption and coercion. There are a number of illegitimate democracies that have come into power through voter fraud, but through blockchain, this would be an impossibility.
Efficiency rather than elimination
Much like an episode of a science fiction movie where robots take the jobs of humans, blockchain can come across as a scary technology that makes people obsolete. But, it should not be viewed like that, rather its disruption is more towards streamlining and efficiency and the restructuring of an institutionalised system that is open for change.
This idea of robots and machines of increasing complexity replacing previously human-operated jobs is nothing new. So-called technological unemployment, a term popularized by the economist John Maynard Keynes in the 1930s, described it as “only a temporary phase of maladjustment”.
That assumes that AI is going to impact the job market at all in the near future. The US Treasury Secretary under Donald Trump, Steve Mnuchin, recently claimed that automation is not “going to have any kind of big effect on the economy for the next 50 or 100 years.” Who they’ll blame unemployment on when it does have an impact is anyone’s guess.
Illustrations by Kseniya Forbender
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]