Blockchain: The Protocol for Scarcity

Blockchain is the technology behind Bitcoin. Some call it a distributed ledger, some call it a “trust system”, some call it the Internet of Value and so on.

It is all of the above. But what’s the fundamental economic idea that makes Blockchain useful?

“Value” is subject to scarcity. Air is available in abundance, would you pay for it? Similarly, if every rock in our rivers was gold, would gold have any value? Gold and diamonds and sometimes even water becomes “valuable” as it becomes scarce. Value and scarcity are directly proportional: more scarce, more valuable.

In the digital space, we are used to abundance. Google gives you access to unlimited information, you can upload as many photos to Facebook as you want, Wikipedia is a free encyclopedia, you can write an email and send it to a million people, and so on. Limitless, free access to information and your ability to reach millions through platforms like Medium, Twitter and YouTube has eliminated information scarcity and transformed the business of libraries, books and newspapers.

What does Blockchain do? It reverses the above. It’s a protocol for Digital Scarcity. By removing a central authority that can increase supply and therefore destroy the value of a digital good, Blockchain proposes a new approach to assign and preserve the value of 1s and 0s stored in an online ledger.

Let’s call this new scarce good a “digital asset”. It has value because there is social consensus: everyone says it has value. Why does everyone agree it has value? Because they believe it is scarce, cannot be replicated and no one can destroy it by creating more of it.

A “digital asset” is 0s and 1s (or entries in a ledger) that is 1. Scarce. 2. Secured 3. Can be Owned and 4. Can be transferred. Blockchain makes this possible. Bitcoin is the most famous Blockchain-based digital asset (but not the only one). There are 900 other such assets and counting with a “social consensus” value of over $150 billion.

Is this a scam, a ponzi scheme or a bubble? While it might seem and even behave like the above here and there…it’s anything but.

Blockchain is the Internet of Value and it will unlock over $100 trillion worth of financial opportunities for everyone — for a friendly old lady from a village in Ghana to the shrewdest investment banker in Singapore.

Underestimate it at your own peril. Ignore it, and the world will ignore you.