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Implications of blockchain technology

A discussion with Dr. Shermin Voshmgir, founder of BlockchainHub

More and more, blockchain is a discussion point for financial professionals, government officials, corporate executives and technology watchers of all stripes. Questions abound on what it is and how it may impact organizations, but it is clear that the potential for disruption is very real.

We asked Dr. Voshmgir, the founder of BlockchainHub and a frequent speaker and thought leader on the topic of blockchain, to share her insights on this new technology and what we might expect.

Dividends: According to a report earlier this year by the Harvard Business Review, “It will take decades for blockchain to seep into our economic and social infrastructure.” Do you agree with that assessment, or is blockchain closer than people think?

Dr. Shermin Voshmgir: The answer is a bit more complex. First of all, it really depends on the industry and the use case in question. Use cases like supply chain transparency or accounting and controlling on the fly need widespread technological adoption as well as industry standards. Simpler applications that don’t rely on huge network effects, along all players of society, might be feasible  quite soon. But it is true, the technology is still young. We haven’t fully developed the technology stack yet, and there are still many technical as well as legal challenges to overcome before widespread adoption.

Also, what blockchain are we are talking about? Are we talking about permissionless blockchains like bitcoin and Ethereum or permissioned/federated blockchains in the sense of a simple distributed ledger, as in the case of R3 (banks), EWF (energy) and B3i (insurance)? The first is a completely new way of organizing a geographically disparate group of people who do not know or trust each other around a tokenized economy, powered by crypto economic-incentive mechanisms of blockchain tokens. The latter is more like SAP in the ’90s: It can massively reduce translation costs but won’t revolutionize existing business models too much. The only thing these technologies have in common is the distributed ledger.

Dividends: What barriers must governments, corporations and other legal entities overcome to widely adopt blockchain, and what must be done to showcase its benefits in order to overcome systemic inertia?

Voshmgir: Unfortunately, there is still a lot of misunderstanding about what blockchain really is. We need more awareness around the true implications of this new technology. Many mistake it with FinTech technology and don’t understand that bitcoin is not only e-cash, but rather an operating system for a new economy.

They don’t understand that bitcoin was only the first of a series of blockchains with very different properties than bitcoin.

Furthermore, for many tokens the term “cryptocurrency” is misleading. We need to start using terms like “crypto commodity” or “crypto assets.” Legislation first needs to thoroughly understand the complex aspects of blockchain technology, with its wide array of use cases and interdisciplinary implications, in order not to overregulate or mis-regulate. A good way
to do that is through pilot projects and sandboxing.

Dividends: How do newcomers participate in the blockchain revolution? Does it require significant technological and resource investment?

Voshmgir: Do you mean cryptocurrency speculators or investors for blockchain tech? As for the first, anyone can register on an online exchange and start buying cryptocurrencies. As for the latter: Again, this really depends on the use case in question. The biggest problem currently is a shortage in blockchain developers. Experienced blockchain developers will never work for hire, since most of them got rich with the crypto bubble and do not need your money. So you will need to pay very high day-rates, or have big ramp-up times to set up in-house expertise. Take the time to do that. It’s still early in the game.

Dividends: In reading about hacks to bitcoin exchanges, it may prompt some to ask how secure blockchain really is. How do you respond to people who may have questions about this?

Voshmgir: The bitcoin network itself has never been hacked. However, cryptocurrency exchanges run by private corporations – selling and trading bitcoin on centralized server infrastructure, managing funds of thousands of bitcoin investors in online wallets – were hacked. This kind of vulnerability is not related to the bitcoin network at all. The vulnerability is related to traditional Web-based client server infrastructure, the very architecture that the bitcoin blockchain replaced with a distributed ledger. You need to get a better understanding about how the blockchain network operates, who the stakeholders are and how they are incentivized.

Dividends: How can corporations and governments overcome aversion to working in a blockchain ecosystem which encourages collaboration and transparency?

Voshmgir: Funny enough, most politicians seem quite open toward this technology. I have personally advised several governments and spoken to many politicians over the last two years and was never faced with wide aversion – quite the opposite. But to answer your question, I think that pilot projects of a noncritical use case are the best ways to learn how the technology works in order to  understand what regulations might be necessary.

Dividends: What does critical mass look like for blockchain? What are the key organizations to watch that will lead the way in ushering in widespread adoption?

Voshmgir: The critical mass needed very much depends on the use case in question. Permissionless blockchains are multi-stakeholder networks organized around predefined token governance rules. Their “system upgrade” is complex, as you can see in the case of bitcoin’s ongoing scaling debate. Depending on the type of blockchain – or application building on top of it – the key players will differ. You need to get a better understanding about how the blockchain network operates, who the stakeholders are and how they are incentivized. I also believe that permissioned blockchains (industry consortia) will be a catalyst that could lead to more widespread adoption of public blockchains like bitcoin and Ethereum.

Meet the interviewee

Dr. Shermin Voshmgir is the founder of BlockchainHub and runs BlockchainHub Berlin. She is on the advisory board of the Estonian e-residency program and a curator of the DAO; she regularly speaks at conferences and consults on blockchains and smart contracts. Voshmgir did her Ph.D. in IT Management at Vienna University of Economics, where she was an assistant professor and currently lectures on blockchain-related topics. She studied film and drama in Madrid.

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