Crowley the Crocodile and a future with Blockchain Transactions (cartoon)

Blockchain Transactions

Blockchain Transactions are at the heart of why you should care about Blockchain. I’m showing my age by mis-quoting Bill Clinton’s famous line about the economy, but Blockchain is all about re-writing the way we process and manage transactions.

First of all, some homework. Go read this excellent, written-in-plain-English article. It’s an excerpt from a book on Blockchain that imagines a day-in-the-life of someone in 2030. The “someone” is actually a cartoon crocodile, but don’t let that stop you. It presents lots of ideas that show how Blockchain Transactions can change everyday life.

Off you go: A typical day in a blockchain enabled world.

Welcome back. Let’s dig in to some of the main themes the article talks about. In Part 1, we’ll look at peer to peer transactions. In future posts, we’ll look at automated transactions, tokenization of assets, rating systems and commerce.

Some Background

What is a Transaction?

A transaction is simply an exchange of data. That data may have direct or indirect value. Almost everything you do builds on some kind of transaction. When you buy a Starbucks, that’s clearly a transaction between you, your bank and Starbucks (and a bunch of other middlemen like payment gateways). If you check the weather on the way to Starbucks – that’s a transaction between your phone and a web service of some kind. Did you tell your kids to have a good day at school before they left? That’s a social transaction. The list goes on.

What is a Blockchain Transaction?

In principle, a Blockchain Transaction could be any kind of transaction. The key difference is the lack of middlemen. Many of the transactions we encounter on a daily basis require a middleman to work. This is especially true of payments.

Peer to Peer Transactions

A huge promise of Blockchain is the enabling of peer to peer transactions without the need for a third party.

We’ve talked about this many times, but it is a critical point to understand about Blockchain.

When you make a payment, you trigger a flurry of activity between multiple third parties. These include the bank that issued your credit card, the merchant’s payment processor and the merchant’s bank. And that’s just the beginning. If any of these links in the chain are untrustworthy, or just plain sloppy, you have a problem. And of course, no-one is ever sloppy with credit card data, social security numbers or any other kind of sensitive data.

Worse still, every single entity in that chain of transactions has its hand out, grabbing a percentage. Your credit card charges you fees and interest. The payment processor and the merchant’s bank take a non-trivial slice too. Trying to do an international transaction? Better raise your fee-paying expectations across the board. Want to do a fast international transaction? Bring on the pain.

And don’t even get me started about special case transactions, like buying a car or a house. Does your realtor really deserve 3% of the price you paid for your home? Nine times out of ten, the buyer probably found the home online and all the realtor did was show up. The seller’s realtor may not have done much more work either, certainly not enough to justify tens of thousands of dollars in fees. The attorney that papered the deal got paid. The title agency got paid. The mortgage broker got paid. The mortgage company got paid (in addition to what you’ll be paying for the next 30 years). The list goes on.

Peer to Peer Blockchain Transactions

In a Blockchain world, it’s possible for any two parties to securely transact with only minimal fees. And they transact directly with each other. In this case, our hero Crowley is able to buy a house directly from a seller. Both parties use an automated escrow system, and the title deed gets reassigned to the new owner. Along the way, the parties pay a small fee for the transaction. Very small. For example, the highest Bitcoin transaction fee ever recorded is about $8 and the broader Bitcoin community considers this to be extremely expensive. There are alternative cryptocurrencies to Bitcoin that have transaction fees that are just a few pennies or less (relatively high transaction fees are one of Bitcoin’s shortcomings).

In conclusion, if fees are tiny and any buyer can purchase any item directly from any seller, the whole nature of commerce changes.

We’ll talk about that more in a future post.