Brokers, intermediaries and blockchain
As a follow-on from my article on the top 7 things that people want to know about blockchain, I came up with another question:
Does blockchain create value? Or to put it another way, “How does blockchain create value?” The short answer is: It doesn’t – in and of itself.
Blockchain is infrastructure. Blockchain is an enabler. Blockchain is a protocol – or a network – or information stored in a ledger.
Blockchain, as a simple analogy, is the equivalent of an Excel sheet with protected cells and macros, which is shared with lots of different people.
Blockchain allows for the elimination of intermediaries and brokers. Sure, blockchain technology can facilitate the transfer of assets between counterparties without the need for enterprises (like banks) to sit in the middle. Still, there is something else these brokers bring to the table.
The brokers bring the network.
It’s this network of participants and counterparties that holds great value. Whether discussing trade finance, supply chain management or digital marketplaces – you can build the best platform in the world, and it won’t matter unless you can bring people, organisations and community to the network.
The main attraction to networks without intermediaries is that this new system will make transactions cost less. The system is laser-focused on reducing costs and passing those savings on to the network participants. With the right level of savings it can be, “If you build it, they will come.” (Field of Dreams is one of my all-time favourite movies.)
Running in second and third place are: Efficiency and Accuracy.
To replace a broker or intermediary, you have to understand the value they bring.
Brokers sit in the middle between concerned parties, and it is their job to collect the fees from one side and pay them to the other side. Fees are paid when services are delivered. And yet, for some reason, this flow of money is prolonged and often prone to errors. It turns out that brokers a) don’t want things to go too fast because they want to hold onto that money as long as possible and b) they don’t want to invest in systems because that would potentially take away from their margins.
If someone creates a new network, it can undoubtedly attract enterprises to join by promising more efficient and accurate transactions. There is a constant ongoing battle at local and global levels to increase liquidity in the supply chain. Buyers want shorter timelines for delivery of new goods so they can better manage stock levels and manufacturers desire faster payments, so they have to spend less on trade finance.
Oh, and by the way, there are a bunch of folks in the trade finance sector who don’t necessarily want an improved supply chain liquidity. They make a lot of money out of buyers not wanting to pay and manufacturers not having bags of cash sitting around to start new orders. If a new network were to come along and offer to make the whole system more efficient, someone’s going to lose – The trade finance companies, e.g., Banks, Multinationals – You know, those with money and power.
What else do brokers offer containing value? And what must any competitive system also provide? Privacy.
Some information is not considered commercially sensitive. Other information, such as pricing is considered very sensitive. And some information (like the identity of the buyer) may be private in some transactions but not in all. It is the responsibility of the broker to protect and maintain the confidentiality of information between counterparties. Any new system should be able to have the same fine-grained privacy controls.
Another asset brokers provide: A birds-eye overview of the market.
I have a friend who works in the maritime shipping industry. With only a limited view (from just his company) he can work out which economies are thriving and which are stalling. Today the UK sees a massive surge in imports as COVID-19 eases, and this is causing increases in costs and delays in delivery.
Access to this birds-eye view of a market has tremendous value for the brokers themselves as well – And they know it.
Providing their insights and opinions based on real data is invaluable to analysts, traders and customers alike.
There is massive value in the information stored in the network.
If there were no brokers or intermediaries, then all of this information would be available to the members of the network. And the value of these insights can be shared within the network. It can also be packaged and potentially sold to a third party to support the costs of running the network.
For the sake of discussion, let’s say that a network has four types of stakeholders: Buyers, Suppliers, Support Services, Network Operators. And yes, we are in a capitalistic environment for this scenario. This means that buyers don’t trust each other (they are competitors), Sellers don’t trust each other (they are competitors), Buyers and Suppliers don’t trust each other (they are adversaries for margin), Neither buyers nor suppliers trust support services (like Insurers and customs services) because they are eating away at the margin and are often just a necessary evil ‘of doing business’.
Lastly there are the network operators – And no one trusts the network operators either. All the other parties are convinced that the network operator is taking too much of a fee for providing too little of a service. The network operators, intermediaries and brokers are the biggest necessary evil of all.
Unless…Unless they aren’t.
Unless everyone can come together and agree to work together (whilst still being competitors) and to create a business and technology network that allows for reduced costs, improved efficiency while adding more significant market insights from data.
Before you say it: No. Google or Amazon or Alibaba isn’t the answer. All of them are “centralised”, and they all sit in the middle just like – (you guessed it)- just like a broker…
What is needed is a platform for technology which is decentralised. A platform where information can be shared in a controlled fashion. A platform where trust can exist in being transparent about certain information with everyone in the network.
If ONLY we only had such technology available today, it could potentially change entire industries.
Any ideas…
Get in touch with us [email protected] / Twitter @igetblockchain.
Troy Norcross, Co-Founder Blockchain Rookies
Twitter: @troy_norcross