Blockchain is a complex technology, but its value proposition is very simple – distributed trust. This means you can trust the network, without trusting anyone – or any thing on the network.  It enables direct peer-to-peer transactions in a way we haven’t seen since precious metal coinage was taken out of circulation.

What this enables is staggering. To put it in perspective, consider that it costs the global economy ten trillion dollars a year to move all the goods and people that need to be moved – planes, trains, ships, and trucks, roads, rails, and pipelines, airports and container ports, truckers, pilots and freighter crews, and including the five trillion dollar oil industry that powers all that motion. This is a lot of infrastructure, and so this price tag makes some kind of intuitive sense. Stuff needs to be moved, it costs money to move it (“free” shipping notwithstanding), and ten percent of gross global product is that cost. However, the money that pays for all stuff also has to move, and this costs the world three trillion dollars a year – not a lot less than physical transport – despite the fact that a payment network requires – or should require – orders-of-magnitude less infrastructure than a shipping network. This points to tremendous inefficiency in the traditional systems – which is unsurprising when you realize that many of these systems were built seventy years ago to automate processes developed during the industrial revolution. The core systems can’t be changed, because nobody even understands them anymore, and the banks can’t risk breaking them. Transborder payments can be delayed weeks, and even outright lost. Letters of credit are still filed on paper, processed on paper, and only hit the digital system when they’re finally executed. The fees for these services are higher than they should be, because you need a bank to do this for you.

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What payment networks are really providing is trust. Trust that you’re going to get paid for what you’ve provided, and trust that you will be in turn able to exchange what you’ve been paid for what you need yourself.  Distributed trust provides the same trust guarantees, without the monopoly network tarrifs, without the foreign exchange cost, without the frustration and delay of the conventional systems. This applies not only to the transactions themselves, but to the supply chains they underpin, the letters of credit and insurance markets that backstop them, to the authentication and verification of every transaction step in the entire economy. Writ large, this transformation will liberate much more than the three trillion dollars absorbed in transaction systems.

The meteoric rise of Bitcoin, the ur-example blockchain network, is proof of this value proposition, but the proof-of-work protocol it’s built on burns more electrical power than a medium-sized industrial nation, and this is just not sustainable. Layer two solutions, akin to filling a shopping cart and treating the whole heterogenous load as a single transaction, inevitably compromise security. Proof-of-stake systems are an improvement, but still don’t scale well, and are further subject to the same centralization problem that we already have with banks. In moving to Proof-of-Stake, Ethereum has become controlled by the top six crypto-exchanges. This is not what distributed trust looks like.

Realizing this transformation will take new technology, secure, scalable, and decentralized. That’s what we’re working on at Dandelion. Come take a look.

Community article written by Paul Chafe, Dandelion Networks

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