Two whisperers stand on my shoulders, with conflicting messages about blockchain.
On one shoulder is the former Silicon Valley CEO in me. This middle-aged guy whispers traditional business-school caution. Due diligence, risk-reward tradeoff, execution orientation, etc. He’s not a full-fledged curmudgeon, but is skeptical around new technology.
On the other shoulder is the impact investor in me. He has been heavily influenced by studying ethics in graduate school. He has an open stance and more courage when confronted with new things. That guy is hopeful, and can be found whispering about blockchain as a force for good.
Both guys know that a blockchain records transactions. They know it can change the way organizations and individuals work together. But the conflicting whispers from my skeptical and hopeful selves have made coming to terms with blockchain a struggle.
I’ve had 30 years of participation in the records and information management space and I’m an impact investor. I’m also the father of a 27-year-old and a 24-year-old.
My two sons work for software companies. Both have that millennial ease with technology and technology-driven experiences. They appreciate innovation and authenticity, plus they are quite open to challenging opaque institutions and centralized systems. They are wary of disinformation, and don’t automatically trust the powers that be. They believe that technology can do some things better than people. This outlook rings true for most of the millennials I have come to know.
Understanding and using technology is more of a grind for me. Collaborating, however, adds the confidence needed to undertake the grind. Because of that, I’ve learned to listen carefully to my sons when it comes to tech stuff.
That particular brew has led to an interest in blockchain, which I see as an advanced info tech system of record-keeping…that can generate social and environmental impact…and is best understood with the help of millennial river guides.
Generational transfer
There is a lot of talk in the investment business about a generational wealth transfer underway from baby boomers to millennials. When this financial capital transfer is blended with a transfer of technology-related intellectual capital from the other direction, it becomes more interesting. It becomes an exchange of value.
But even better than two-way exchange, is a scenario where financial and intellectual capital are blended, and then focused on problems in the developing world: boomers and millennials collaborating to redirect capital and help find solutions for those in need.
My sons and I have started working together on “emergent digital practices” for social good. We are bringing ideas and opportunities to the collaborative donor-advised fund called FARM, a nod to Stanford’s nickname, “the Farm.” This is a charitable vehicle where Stanford Graduate School of Business friends and I have been chipping in grant capital over the last 7 years.
The donor-advised fund is administered by the pioneering nonprofit financial services provider ImpactAssets. The donations have been invested in promising early-stage for-profit impact businesses. In addition, we try and find ways to connect the firms to fitting pro bono support. Our hope is to generate solid returns, and then recycle those returns by investing in future entrepreneurs. Overall, FARM has a self-sustaining and pay-it-forward feel. Meaningful work.
Donor-advised funds move to provide an onramp to impact for smaller investors
Last summer, one son suggested that we should use an impact lens and start paying attention to blockchain. He said there were important social and environmental use-cases coming, use-cases that could map to the 17 Sustainable Development Goals set by the United Nations. Blockchain for social impact projects, he said, would be quite interesting for the current FARM network, and might also be attractive to new crypto-oriented donors.
On March 6, 2015, I had my first real conversation about blockchain. It happened as part of a call on another matter with a board member from the University of Nicosia in Cyprus. He had been a Baker Scholar at Harvard Business School. When I asked about his other interests, he mentioned Bitcoin and suggested I consider buying a little of the currency (at around $300) and investing time to learn about it. He said it would be worth the effort, and gave me a primer on the underlying blockchain technology.
It was good advice. But I didn’t listen. (Dumb move.) It seemed a bit scammy to the skeptic on one shoulder, too easy to transact anonymously for nefarious purposes. And given all the complexity, the eyes of my hopeful whisperer glazed over.
Fast forward to the summer of last year. When my son connected blockchain and impact, there was no mention of speculation and easy money. He was curious about doing the work to invest for social and environmental good, and it reopened the dialogue in a completely different way. Eventually it led to the three of us attending a “Blockchain for Social Impact” conference in NY.
ConsenSys puts up $50 million to hunt for blockchain solutions to global challenges
Rules, not rulers
Conference discussions about “track and trace” in developing world supply chains and incorruptible land registries activated my records and information management, or RIM, experience. Good records and information management aims at efficient and systematic control. It involves the creation, use, and eventual disposition of evidence and information about business activities and transactions.
Bad RIM practices open organizations up to serious problems like fraud, corruption, obstruction, and information leakage.
I have come to believe that blockchain leads to better, faster, cheaper records and information management. It leans on rules, rather than rulers.
A blockchain is an accessible and transparent digital record. Like a traditional ledger, it records transactions. Transaction intermediaries are removed, transaction time is reduced, record keeping costs are reduced, and records can’t be altered or deleted. It is efficient, secure, and decentralized. All this establishes trust and can change the way businesses, governments, organizations, and individuals work together.
Persuasion: The skeptic in me has been convinced that blockchain can actually work, by three key concepts that are marbled together and can be hard to grasp: consensus, decentralization, and incentives.
Given problems like fraud in the world of records and information management, it can be hard to know which records to trust. Blockchain excels at forging consensus on which records are true. Lots to read about related to “The Byzantine General’s Problem.” The computer science solution is where you can get deeply into learning about mining, proof of work, and proof of stake etc. In short, blockchain uses creative technology to develop a consensus mechanism, resulting in an agreed state… a single source of truth. The agreed information is then recorded in a block, and attached to the chain of blocks that have come before. A methodical set of steps. Linear and chronological.
The agreed and updated chain of blocks is distributed widely. Rather than a central point of control, the records live on in a decentralized fashion. They are accessible.
Recording transactions this way reminds some people of a fossilized dragonfly in amber. This image highlights two key features of the blocks: transparency and immutability (i.e. an unchangeable nature). The dragonfly in amber can be seen and accessed, but it can’t be altered.
Network participants are continually verifying and maintaining the integrity of the processes and data, which leads to trust. Achieving this trust takes human energy. Developers, miners, users, and investors in each blockchain ecosystem need to be aligned and committed. They need a motive for active participation. Economic incentives are very powerful motivators, often more powerful than sanctions, regulations, and penalties.
Blockchain relies on carrots vs. sticks. This is where the tokens or coins play a major role. (I see them as critical, but in the background of the story. The current media emphasis on cryptocurrency trading and fast profit is distracting.) The incentives are an advance from the world of open source software, where computer scientists and internet citizens with good intentions started things like Wikipedia with altruistic reasons in the foreground. Token economics can draw vastly more human energy to the ecosystem.
The skeptic in me has been persuaded that consensus, decentralization, and incentives can help make those in the ecosystem stronger and smarter, leading to competitive advantage. The hopeful side has been persuaded that all this is useful for collaboration, and can help when playing defense against obstacles faced by the “better angels of our nature.”
Exhortation: This post doesn’t attempt to prove all the claims above. Instead it is offered as an exhortation for you to do your own work, from your own perspective, and engage with this emerging technology. Given that blockchain maps well to the millennial outlook, it might help to find a NextGen river guide to navigate the complexity.
As for me, I’ll keep looking to my two sons when it comes to understanding emergent digital practices for social good.
