Blockchain changes everything. We have covered 10 markets in depth in earlier chapters. In this section we look at 11 more in a less detail. That makes 21 markets that together are worthy of the tag “everything”; they pretty much account for global GDP.

This is Part Two (Chapter 14) of The Blockchain Economy serialised book. Part Two is where we focus on real world use cases aka Applications. This chapter concludes Part 2.

The book is divided into 5 parts, each with multiple chapters/posts:
Part 1 = How The Blockchain Economy Infrastructure Is Being Built. For the index/table of contents please click here.

Part 2 = How The Blockchain Economy Will Impact Existing Markets Where we are now. For the index/table of contents please click here. TL:DR, software is eating the world and this time the software is decentralised.
You can visualise Parts 1 and 2 through the stack metaphor. Terminology note: “applications” has become conflated with “apps” and that tends to mean downloadable mobile front ends. This book uses applications in the broader sense of a range of technologies and services applied to delivering a value proposition in a market.
Both Layers 1 and 2 target developers as the users/customers. We do not make a hard differentiation between Protocol Layer and Middleware as this is a fast-evolving space, with tectonic shifts happening at the protocol layer. Layers 1 and 2 make sense for you (as an investor or entrepreneur or employee/contractor) if your primary expertise is technical. If not, choose one of the 21 markets covered in Part 2 of this book that fit your expertise and network. Even if you focus on Layer 3, Applications, you need to understand what is happening at Layers 1 & 2, as you will be using these to deliver your value proposition.

Part 3 = Investing In The Blockchain Economy. Coming up next. This part will describe which layer of the stack you should invest in, depending on your expertise and risk appetite, and which of the many asset types you should invest in (aka Token types - Security, Utility, Payment etc).

Part 4 = Creating A New Venture In The Blockchain Economy. An Entrepreneur is an investor with a super-concentrated portfolio. Yes investing the most precious asset, time, is at least as valuable as investing cash that was created by those who had earlier invested their time wisely. As the big risk-taker in this game, entrepreneurs are the lead actors in the Blockchain Creative Destruction 7 Act Play.

Part 5 = Working As A Contractor/Employee In The Blockchain Economy. Advice to people starting their careers = work for a great entrepreneur, make important stuff happen, learn and build your network, wash/rinse/repeat or use all you have learned in your own venture. Even if you choose to remain a contractor/employee (as most will do, it is a lifestyle decision), choosing to work on the right side of a disruption wave is sensible (for example, a “safe” job at Blockbuster was not actually safe, but a “risky” startup like Netflix would have been safe). As a contractor/employee you also get the chance to learn enough to invest in The Blockchain Economy (as long as regulators and incumbents don’t stop the movement towards the democratisation of investing).

Parts 3 to 5 will be shorter because they will refer back to Parts 1 and 2.
This Chapter looks at the 11 other markets facing Blockchain disruption:
• Energy markets.
• Gaming/Gambling.
• The next billion (aka Middle Class on ramp in emerging markets).
• Cybersecurity.
• Philanthropy.
• Creative Economy.
• Real Estate/Property.
• Education.
- Credit/Lending.
• Recruitment/HR.
• Government.

In earlier chapters we covered these 10 markets:
Wall Street
Payments
Insurance
Healthcare
Media
Supply Chain
Legal Industry
Sharing Economy
Cannabis
Ecommerce

Together with the 10 markets covered earlier, that is 21 markets that that together are worthy of the tag “everything”; they pretty much account for global GDP.

Energy markets.
Blockchain enables customers to buy and sell energy directly between themselves, without an intermediary. This is a bit like the vision of Enron, but without one institutional intermediary that proved to not be trustworthy. One example is LO3 Energy. Energy management is ripe for disruption as it is a highly centralized and opaque industry with lots of bespoke bilateral deals. This intersects with how Blockchain is changing the supply chain business where energy and other commodities can be traded in transit.

Gaming/Gambling.
Casinos have used Analog Tokens long before Blockchain. Payments via Crypto Tokens will increase the size of market by making the payment in an out easier whether in a physical or digital venue. Like the Marijuana and cryptocurrency businesses, gaming/gambling falls into a legally grey area in many jurisdictions, but the trend is toward increasing legalisation (because legalisation drives tax revenue for governments). Many Bitcoin casinos have come and gone due to legal hassles and security breaches. For example Seals With Clubs, shut down in 2014 after a major security breach. Roger Ver, a crypto pioneer who is famous/infamous for creating Bitcoin Cash (BCH) as a technical and branding breakaway from Bitcoin Core, moved into gaming/gambling via multiple pivots. He started with Casino.Bitcoin.com, powered by a white label partnership with SoftSwiss Casino Software, then morphed into cashgames.bitcoin.com where BCH is the Crypto Token. In Casinos (virtual or physical) security is a key job (watch Oceans 11 etc for an edutainment on how that works) and Blockchain can help with Smart Contracts and Multi Signature Wallets, where casino money will stay in the hands of operators, but customer funds are held in cold storage. Like the Cannabis business, gaming/gambling have problems working with Traditional Finance and Legacy Payment Rails. The issue of privacy vs KYC/AML regulation is still being played out; many operators and gamblers want privacy/anonymity, but regulators/governments want KYC/AML. Our take is that the Dark Web and what we call ClearNet will co-exist and individuals will use both depending on their use case. For most gamblers a regulated KYC/AML compliant venue will be preferable, in order to avoid getting scammed by unscrupulous venues (but a good rating system and open source transparency on the gaming algorithms could substitute for regulation).
The next billion (aka Middle Class On Ramp in emerging markets).
Immutable, censorship resistant blockchain ledgers can be used to give access to financial services to billions of people around the world - the underbanked. There are two opportunities. One is lower cost remittances (for example, look at what Abra is doing). The other is giving billions of people access to property rights (which we take for granted in the West). For example, look at what De Soto is doing).

Cybersecurity.
Although headlines trumpet cryptocurrency exchange hacks, decentralised cryptography could be the only fundamental solution to the escalating cybersecurity arms race (a thesis first outlined on Daily Fintech in October 2015). Cyber security is an A List challenge and Board level priority and yet despite ever increasing investment in a bewildering array of super smart cyber security startups, this looks like one arms race that the bad guys are winning. Contrast that with Bitcoin. Despite an obvious prize and years to try, hackers have not cracked the prize. Bitcoin has been hacker proof to date (hacks on centralised exchanges are quite different from hacking the underlying decentralised network). This is massively counterintuitive for most people, but it is technically accurate; centralization is the problem, decentralization is the solution. If you bring it all into one place, you invite hackers no matter how big you build the walls.

Compute Resources.
Lots of ventures have raised a lot of money to compete with Amazon Web Services (AWS). For example there is Storj in storage. The idea of using consumer’s spare storage, bandwidth, CPU etc is as conceptually appealing as renting a spare bedroom on AirBnB - we all love “found money”. However it is really, really hard to compete with Amazon, as Jeff Bezos never leaves much room for undercutting on price and will happily engage in a price war.

Philanthropy.
Common complaints in the charity space include inefficiency and corruption, which prevent money from reaching those that are meant to have it. Using blockchain technology to track donations can let you be sure your money is going to end up in the right hands. Bitcoin-based charities like the BitGive Foundation use blockchain’s secure and transparent distributed ledger to let donors see that the intended party has received the funds.

Creative Economy.
Creative economy includes musicians, photographers, video creators, writers etc. Music has been at the leading edge of digitization change since Napster landed like a cat among the pigeons.Blockchain is making it possible for artists to earn royalties on their music without going through a record label. For example, looks at how Grammy-winning artist Imogen Heap has used blockchain to create a streaming platform called MYCELIA. Another example in music is JAAK. Most creative economy workers are free agents, where the big issue is creating trust between buyer and seller; look at what Blocklancer is doing to address that. Smart Contracts ensure that payment and delivery are within both party’s expectations. Video is a huge part of the creative economy (predicted to account for 82% of all Internet traffic by 2021) and blockchain may play a role by decentralizing the video encoding, storage, and content distribution (potentially saving $30 billion in wasted Internet computing services). For example, look at VideoCoin are doing.KODAKCoin, derided as a legacy company jumping in the ICO bandwagon, is using a blockchain ledger to protect digital image rights for photographers, so that they can securely register their work (which sounds like a real problem to solve).

Real Estate/Property.
Blockchain can be used to manage, track, and transfer land titles and property deeds. For example, look at what Ubitquity is doing. This may be a First The Rest Then The West story. Real Estate/Property record keeping & paperwork is a drag in the West but in the Rest (Of The World aka emerging markets) the need for basic property rights is an A List priority for billions of people. Blockchain can also address the needs of the younger generation who rent rather than buy. The full lifecycle process - finding a place to live, interacting with the landlord, handling security deposit and negotiating contracts could be a lot more efficient.
For example, look at what Rentberry is doing with blockchain-based smart contracts that directly connect landlord and tenant.
https://rentberry.com. A multi-sig wallet on blockchain elminates the need for ye olde escrow and notary process. This enables property to be tokenized and traded and rented. For example look at what Atlant is doing. With commission rates as high as 6%, sellers have motivation. A company called Deedcoin is using blockchain to slash these rates to just 1%. https://www.deedcoin.com

Higher Education.
This is a $475 billion market. The Centralized Internet enabled digitised knowledge transfer via MOOCS. A company called SocratesCoin is taking this a step further by combining blockchain and virtual reality to create a global community of faculty, students, campuses, and curriculum. Rather than try to make existing universities more efficient, they enable “full stack” startup universities; appropriately, the first one is in science.

Credit/Lending
The worldwide consumer lending market is estimated to reach $48.3 trillion by 2019.The Centralised Internet gave us “P2P Lending” that morphed into using better marketing as a lead generation tool for Traditional Finance (which thanks to Fractional Reserve Banking has lower borrowing costs than any startup can get).
Blockchain based Credit/Lending takes an old idea from wealth management called a Lombard Loan to create a more radical alternative. Private Banks offer Lombard Loans to clients who store assets under their custody. The loan to value depends on the asset riskiness/volatility. There is no systemic risk Fractional Reserve Banking, because all loans are 100% backed by reserves.

Now extend that idea to crypto assets:
• high volatility means a low loan to asset ratio. Given that the starting point is zero, there is a lot of room for ventures to deliver value here.
• crypto assets are best stored in decentralised wallets, rather than institutional custody or at exchannges. So lenders need access to data in multi-sig wallets and smart contracts need to ensure that everybody gets what is owed to them.
There are many ventures positioning in this market such as SALT, ETHLend, CoinLoan, Nexo, Othera and Celsius). There are rumours that Credit Suisse are working on a blockchain loan platform. It is only natural that cryptocurrencies will be used as a new form of collateral.

Recruitment/HR
Worker credentials. When companies hire an individual for a job, they want to get the best qualified person with the most appropriate experience levels. Unfortunately, it can be difficult to discern the truth behind the average resume or CV, as more than half of folks reportedly lie on their job applications – and indeed one study showed that a quarter of applicants said they’d worked for companies which in fact had never employed them.
This problem also arises at universities that need to verify the credentials of their faculty, and at hospitals that face a similar challenge when it comes to staff physicians and other healthcare professionals.
The Learning Machine is a company that hopes to change this. By applying blockchain technology, worker and professional credentials can be verified and kept in a secure digital ledger, which cannot be altered down the road to fit another position the applicant is subsequently interested in. The firm promises inherent fraud protection which could make choosing the right person for a job a good deal easier.

Research, consulting, analysis and forecasting
Decentralized prediction markets like Augur will change how we do research and forecasting, which is a key component of the management consulting business. The old saying by W. Edward Demming (popularised by Google) is “In God we trust; all others bring data.” Whether in a startup or incumbent, data that forecasts where the puck is headed is key to management and decentralized prediction markets are disrupting that data market.

Government
This is the biggest business of all, accounting for anything from 25.2% at low end (Chile) to 57.1% at top end (Finland); this data is only for developed markets (North Korea and Somalia are not included). For reference, USA is 37.6%. Blockchain impacts governments in:
• Digital Identity. Our paper documents such as Passports are getting a digital overlay via embedded machine readable data. At some point, some governments may accept digitally native ID. The Aadhaar ID system in India points to that future. For another example, look at what Procivis is doing.
• Property Rights records. We already covered this under Real Estate/Property.
• Other government data. Dubai, for example, is aiming to put all its government documents on the blockchain by 2020. Or look at what GovCoin is doing.
• Voting. Blockchain can be used for voter registration and identity verification, and electronic vote counting to ensure that only legitimate votes are counted. An immutable, publicly-viewable ledger of recorded votes would be a massive step toward making elections more fair,democratic and trusted. For examples look at

Democracy Earth and Follow My Vote and Procivis.
• Public Benefits. Blockchain can make it easier to assess, verify, and distribute welfare or unemployment benefits. For examples, look at GovCoin is a UK-based company that is helping the government to distribute public benefits using blockchain technology. The radical alternative is universal basic income; for an example, look at Circles. Or look at what the UK Government is working on with another startup called GovCoin.
The first wave of change - from dot com to social media - did something rather strange. It took something that was fundamentally decentralised (the Internet, which was designed to withstand nuclear attack by enabling communication between decentralised resources) and made it centralised. That is why most of our searches are in Google’s data centre and most of our social chit chat is in Facebook’s data centre. The Centralised Internet era enabled us to exchange information online. In the blockchain-based Decentralised Internet era we can exchange value online and that puts many more industries into software’s feeding trough.
The golden rule of disruptive innovation is that change takes longer than expected but the eventual impact is bigger than anticipated.
For example, the earliest cell phones were developed between 1971 and 1973. It took more than 20 years for their usage to go from 0% to 10% of the population, then just 14 years to go from 10% to 80%.

The same network effects rule Blockchain.
What has been less studied is the acceleration of change based on ubiquity from the earlier wave of change. Will Blockchain propagate faster now that mobile phones are ubiquitous? If so, get ready for all the 21 markets to change beyond recognition.

Bernard Lunn
Founding Partner, Daily Fintech Advisers
www.dailyfintech.com

Bernard Lunn is a serial entrepreneur, senior executive, adviser and a strategic dealmaker. He worked in Fintech before it was called that with startups, growth stage and turnaround ventures (incl. Misys, Temenos, IMS, ITRS). He has lived and worked in America, India, UK & Switzerland and is adept at cross border deals.

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