BLOCKCHAIN REVOLUTION [8/9] – SWOT Analysis (Book Review)


Summary ->> Contemplation ->> Closing


So far, we have looked into important dynamics of the technology in various facets. Due to its newness of the technology and confusion rising from unprecedented novelty, we had much more to discuss than expected. I believe by now, readers may have developed much clearer understanding about workings of the technology, as I have while doing research.

Since its birth in 1970s, the Internet took about thirty years till it became a foundational technology as we have today. 123 Likewise, for this new technology to become the next one running on top of the Internet, we may have to be patient at this stage. If we have much more to gain from this unprecedented technology, it will stay after all, even if the progress can seem messy and confusing to everyone.

The consensus these days is, if the hype for this new technology turns out to be a bubble any time, just as the dotcom craze was, competitions ultimately will lead to a consolidation where a winner will thrive and mass adoption will take place. The winner – a killer app – will have overcome prerequisite conditions by then, and the prospering technology will lead to numerous opportunities in the long term. I believe the progress then will follow rather an evolutionary track, not a revolutionary one.

So, this prospect leads us to look at where opportunities might lie. As always, opportunities are always found from challenges. So based on SWOT analysis, I will develop my discussions starting from Strengths, Weaknesses and Threats to arrive at Opportunities.

Strengths (Internal)

Obviously, the biggest strength of this technology is ‘distributed trust’ enabled by ‘distributed power.’ The immutable shared public ledger authenticated by mass collaboration eliminating the trusted third party is an unprecedented novelty. It has a potential to move us to the Internet of Value from the Internet of Information today.

Weaknesses (Internal)

The strength of distributed power can become a weakness for the bitcoin blockchain because of its reliance of miners who are essentially and solely motivated by an incentive scheme which is also contingent both on diminishing supply of bitcoin and market price of it, as well as transaction fees.

The ideal of distributed power lets the bitcoin community running without a leader, but this also proves ineffective for the technology in making decisions with internal splits and in moving forward with clear direction. Also, there is a trade-off between security(a core strength) and speed(a core weakness). These aspects may eventually hinder the bitcoin blockchain’s mass adoption.

The enormous energy consumption required for mining process for some blockchains also raise continuous concerns on environmental cost.

Threats (External)

Paradoxically, the very political aim to displace the central bank via its own deflationary monetary policy may result in the invitation of the very entity along with heavy regulations as market capitalization become sizeable and systemic in the economy. If so, the cryptocurrency may face existential crisis in extreme case. Also, anonymity of the technology is continuously exploited by criminals for money laundering as well as tax evasions and by hackers.

Opportunities (External)

The ambiguity and confusion about the role of cryptocurrency may not strengthen their position as a currency or a global payment network replacing existing banking, unless private money issue is solved with(or within) the established system. So the very core promise of displacing or revolutionizing traditional banking and financial service industry seems rather remote ironically.

Also, big changes in the financial service industry may take time, due to three reasons. First, since sensitive money is involved, the industry is taking cautious approaches. Second, due to privacy issue, which is a critical factor, they are mostly opting for private blockchains. However, unproven security may slow the mass adoption process. Thirdly, currently there’s no killer app, effective and efficient enough, to replace existing system yet, so they have no incentive to go for the new technology.

Interestingly, in my opinion, the financial service industry’s transformation could be rather triggered by central banks if they decide to introduce own digital currency with legal tender. The latest discussion evolving around CBDC(Central Bank Digital Currency) implies we have much more to expect in the future.

Then what about other areas? I believe the blockchain’s functionality and merits will be found in the supply chain management in the form of distributed ledger technology that doesn’t necessarily involve monetary transactions via native cryptocurrencies. The distributed, permanently recorded, and transparent ledger will flatten out hidden hierarchies, or hidden lateral layers on the value chain removing inefficiencies, hidden costs, and meddling middlemen.

Industrial supply chain management, the music industry, logistics, shipping or any other business models that involve heavy layers of bureaucracy, multi stakeholders, lack of transparency, numerous middlemen, and third parties hence inefficiencies as well as high costs can reap benefits. The distributed ledger technology will create tremendous value by adding web-connected devices and newest analytics technologies, as many agree. By facilitating to track the movement of its goods and services, the technology will help businesses with lengthy supply chains achieve lower costs, transparency and efficiency. Smart contracts also may play huge roles for business applications and adoptions.

Also, in such areas when/where virtual technology meets the real world, entrepreneurs who remove frictions and enable the final stage of the new technology complete and seamless may find great opportunities.

New jobs that require sophisticated skills, that involve understanding of both new technology and specialized business area, may be created in the very areas where the distributed ledger technology and smart contracts eradicate.

One example can be lawyers who specialize in settling legal cases rising from new unprecedented business cases from this new technology. Potentially messy legal disputes arising from adoption of irrevocable smart contracts with no legal recourse can be one of those cases. Also, such skills and functions that facilitate the bridging roles between old economic systems and rules defined for the nineteenth century industrial age and those of the new digital economy may be strongly required.

Summary of SWOT

As you can find from the weights I have assigned(yes, the stack of coins!), weaknesses and threats outweigh strengths and opportunities at this stage. But as is always the case, overwhelming threats and weakness mean great opportunities to be found and made as we just made a glimpse. I would say this age involves a great rise of entrepreneurship as in the Gold Rush. As the authors termed it, we can see ‘blockcoms’ where dotcoms used to be (less negative connotations from dotcom bubble).


(End of Part 8. To be continued in the next article)



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