Blockchain will transform the world! Many believe that it will impact virtually every business in the manner that the internet did during the previous quarter century. This represents opportunities to investors, not only in altcoins, but also in the industries that will be altered by this digital ledger technology.
At Bitcoin Market Journal, we are excited by these possibilities, but we do not want excitement to cause you to start throwing darts at anything blockchain out of a fear of “missing the boat.” That is why we advocate for making informed investment decisions. With any investment decision, you want to know:
- The “pain points” addressed
- The growth/profit potential
- Key risk factors
- Timeframes in which you may expect to see your returns
As a result, we have compiled a list of the top industries/markets that are likely to be disrupted by blockchain technology. After providing a brief summary of the potential in each, we have ranked them on a scale of 1 to 5 based on the following criteria:
- Simplification/Cost Reduction
- Expansion of Trust
- Data Sovereignty
- Need Fulfillment
- Attainability
To make our list, each industry evaluated needed a minimum rating of 2.5 on a five-point scale.
| Industry | Description | Simplification / Cost Reduction | Expansion of Trust | Data Sovereignty | Need Fulfillment | Attainability | Score |
|---|---|---|---|---|---|---|---|
| Financial Services | Blockchain can impact many aspects of this industry, including: blockchain hedge funds, peer-to-peer lending, vetting of investors, routine disbursements, venture capital, and emerging markets. | Efficiency in smaller transactions by combining all parts of a securities trade across several days and intermediaries into one transaction, saving up to $12 billion annually (Accenture) | Transparency discourages non-compliance and improves confidence in peer-to-peer lending. Community is self-reinforcing and fills void while regulation develops | High priority for security of personal information and protection of financial assets. Validation speed also important | Expand market by increasing affordability and accessibility of services; emerging market potential; token sales can fill needs unmet by traditional VC model | Industry has financial power to build infrastructure and influence regulation. Coalition of early adopters to advocate for standards (ADAM) | 5 |
| Security | Protection from internal and external threats, of both a digital and non-digital nature. Also includes data sovereignty of personal information, which extends into many industries. (ex. Border Security) | Reduce number of checkpoints, need for repeated validation/authentication | Immutable records ensure safety, compliance, and protection. | Improve speed; protect privacy by ensuring only designated parties receive data | Provenance of materials; mutual benefits for both users and providers of personal data | Public support provides Incentives for government and private industry, interoperability and scalability issues | 4.5 |
| Banking | 2.2 billion "unbanked" people in the world. Blockchain can provide banks with a comprehensive customer profile. | Signficant base of predictable transactions to automate and authenticate | "Banking the unbanked" will spur commerce, and confidence grows from increased liquidity | High priority for security of personal information | Build market by increasing affordability and accessibility; emerging market potential | Industry has financial power to build infrastructure and influence regulation | 4 |
| Government | Implementing blockchain in a variety of government functions can increase transparency, inspire confidence, increase engagement, support infrastructure, improve efficiency in managing government records, and reduce costs. | Predictable, routine government services can be automated and executed by smart contracts; reduce expenses by eliminating levels of oversight | Transparency can inspire confidence in democratic processes, such as voting, community building, and expanding participation | Protecting the privacy and security of citizens is a high priority with public support; provenance is necessary in defense/aerospace | Eliminate bribery/reduce corruption. Play a role in providing regulation that supports growth by building confidence; efficient tax collection | Has the resources to build the infrastructure, but must overcome internal intertia | 4 |
| Education | Immutable record of credentialing and course completion | Extremely difficult to change jobs across states; even harder across countries | Valuable in emerging markets; dangers of fake credentials | Credentials tied to personal identification | Benefits to both employers and employees | Strong status quo bias; lack sufficient players to create change infrastructure | 3.5 |
| Healthcare | Customers can control the sharing of personal health data with providers; hospitals have comprehensive views of patient health; pharmaceuticals improve access to research data for clinical trials | Large, growing industry with complexity issues; smart contracts can deliver services; eliminate need for CROs | Growing community of participants can improve efficiencies and lead to improved depth and breadth of services (ex. orphan diseases) | Both sides want to control data, yet benefit from sharing; timeliness an issue; trace ingredients to prevent counterfeit drugs | Desire for holistic treatment; need approval of coverage, authorizations, and reimbursements; value of provenance | Resources exist to build infrastructure; issue is in aligning interests; powerful health insurance agencies | 3.5 |
| International Funds Transfers | Sending money from one country to another. ex. Ripple (See Media Shower Ripple Analysis Report) | Facilitate small, previously cost-prohibitive transactions. Connect lenders and borrowers | Increased confidence benefits both borrowers and lenders | Value in improving speed. Security is essential | Demand in countries with politicial and economic instability and inflation | Existing system designed for MNCs. Potential Interoperability issues | 3.5 |
| Intellectual Property | Royalties for Art, Imagery, Literature, and Music. (ex. Musicians streaming their own music) | Facilitate small, previously cost-prohibitive transactions | Global enforcement of copyrights | Artists manage their own copyrights | Clear record of ownership and authenticiity | Infrastructure development is a major challenge, powerful incumbents | 3.5 |
| Energy | Transferring decentralized power generation into the grid. (ex. Rooftop Solar Panels) | Goldman Sachs sees multi-billion market potential | Peer-to-peer energy exchanges and smart grids | Nuclear has a greatest need for security | Provenance is extremely important for nuclear | Incumbents wield significant political power | 3 |
| Hospitality | Local Host Industry based on peer-to-peer sharing of resources. 7 of 10 millenials prefer local experience (Conde Naste Traveler) (ex. Airbnb) | Local Host Industry $169 billion (Skift) | Millenials rely on recommendations and reviews | Relatively low | Millenial Travel Market estimated at $200 billion (Forbes) | Hotel industry lobby for regulations on local hosts. Airbnb acquired blockchain talent (Biz Carson). | 3 |
| Legal Services | Smart contracts can efficiently perform many legal services, but the legal industry can adapt by designing smart contracts, supporting regulation, and intervening when non-routine events occur. | Routine transactions can be performed by smart contracts, eliminating or reducing legal fees | Transparency in the legal record; facilitate dispute resolution; limitations with terms like "reasonable" and "best efforts" | Overlaps with many industries on issues of security, privacy, and ownership of data | Build market and level the playing field by increasing access to timely and affordable legal protections | Significant connections between legal industry and the political establishment | 3 |
| Media | See the Media Shower Manifesto | Compensation of content creators, and the market, not advertisers, determines value | Public trust increases token prices, which creates incentives for truth. | Decentralized ownership combined with centralized oversight is essential in this age of "Fake News" | Clear, immutable record of content creation; track content usage; give public an ownership stake in media institutions | Entrenched incumbents hold power, but public supports change | 3 |
| Philanthropy | Ensure transparency and track distributions to verify donations used for intended purposes | One immutable record ensures validation of services provided. Cost reduction allows more funds to reach destination | Industry plagued by abuse; fears of misuse reduce donations | Supporters can be recognized or remain anonymous. Improved speed can lead to faster delivery of services | Important in emerging economies and countries with significant refugee populations | Infrastructure needs are significant with no clear leadership. Corrupt players wield power | 3 |
| Wireless/ Telecommunication | Peer-to-Peer sharing of services for unused, previously inaccessible bandwidth | Small transactions made efficient | Immutable record of providers and users | Can vary depending on application; service itself must be secure | Clear pain point; utility optimizing potential; emerging market potential | Entrenched incumbents have the resources, but can create barriers; scalability issues | 3 |
| Accounting | Automate tax filing and facilitate generation of financial statements | Potential to eliminate significant tax prep services, but signficant complexity issues | Increase transparency, reduce non-compliance of citizens, mitigate demands on government validation | Taxes tied to social security numbers; track fraudulent return distributions | Majority of population needs time and money to prepare taxes. Smaller firms will need to diversify and adapt. | Infrastructure funding issues, but government is incentivized to improve tax collection. Potential Interoperability issues | 2.5 |
| Food Industry | Reducing complexity in the supply chain when tracking products, often internationally, from farm to table. (ex. Walmart tracking perishable food from China) | Extensive distribution network but potential for unforeseen events limits smart contract autonomy | Value of transparency in agreements between players ensuring fair treatment | Relatively low, except for value of speed in tracing contamination | Value of provenance in tracing contamination and preventing outbreaks; can also support organic/non-GMO certification | A few major players, but many smaller players may slow development of infrastructure and interoperability | 2.5 |
| Insurance | Improve the efficiency to benefit both agencies and clients by sharing digital identities; ownership and control of personal data could prevent denial of coverage | Potential to settle transaction disputes and reduce fees | Minimize fraudulent claims and eliminate repetitive authentication | Need to balance privacy with transparency | Improve claim verification process; remove moral hazard | Unclear coalition of adopters | 2.5 |
| Real Estate | Immutable record of ownership, repairs, and utility usage; also, flexible sharing economy and fractional ownership | Reduce number of players in process | Trust increases value for both buyer and seller. | Improve speed; immutable ownership record | Property rights in emerging markets | Lack leaders to build infrastructure; regulation and licensing must adjust | 2.5 |
| Transportation | Peer-to-peer sharing of resources (ex. Uber). Also, has connections to other industries through supply-chain principles impacted by blockchain | Potential to eliminate intermediaries and connect to many related industries | As community of trusted players grows, value increases | Relatively low, but clear benefits for speed | Signficant potential for utility optimizing calculations | Insufficient leaders and lack of incentive to build infrastructure | 2.5 |
| Utilities | Related to energy. Buying power from microgrid operators, and efficiently meeting consumer needs | Significant cost reduction potential through optimization | Not a major concern, yet users want best rates. Improved benefits with community growth | Potential to improve speed | Optimizing calculations enables improved incentivization during peak demand | Internal Inertia | 2.5 |
Here is a look at the process behind our industry rankings by criteria.
Simplification/Cost Reduction
The true value of any new technology can often be measured in its ability to lower costs and improve efficiency. For industries in which a sufficient transaction base exists between multiple parties, there are three key components to our Simplification criterion:
- The ability of smart contracts to automate and verify predictable transactions
- Elimination or reduction of intermediaries and their resulting transaction fees, allowing for completion of previously cost-prohibitive transactions
- Efficient delivery of service for compliant transactions
“Cutting out the middleman” has always been a way to save money for both producers and consumers. With blockchain, this can be done with improved performance and increased confidence for all parties. This leads to the next criterion.
Expansion of Trust
Historically, the expansion of trust has led to an increase in commerce. In environments in which regulation is either non-existent, minimal, or evolving, we evaluate industries from a perspective in which blockchain can eliminate the need for a central authority or third-party validation. Where regulation exists, we look at market compatibility with the regulatory environment.
Further, we investigate the value of increasing transparency. This encourages peer-to-peer transactions and mitigates risks of non-compliance. Finally, we explore the potential for the members of a community to align their interests and engage in self-reinforcing activities that expand and improve the blockchain.
To enhance commerce, an industry must strike a proper balance between transparency and privacy. As a result, we will next explore data sovereignty.
Data Sovereignty
Data has been referred to as “21st Century gold.” Blockchain enables the creation of decentralized, immutable data records. In theory, these records are available to everyone who participates in the blockchain, and they can be retrieved quickly to support verification.
Because this information is not contained in one central repository overseen by a central authority, there is no “honey pot” that is easily targeted by hackers. Certain industries place a higher value on safeguarding privacy due to differences in the stakes involved.
Significant transformative potential exists in industries in which individuals can own and control access to their personal data. In this scenario, they can restrict access of those who would use their personal information to their detriment, and sell their data for profit to those who would use it productively. This is markedly different from the current situation in which “The Four” (Amazon, Apple, Google, and Facebook) actually control and profit from a wealth of personal information.
Need Fulfillment
In evaluating the viability of any business opportunity, it is essential to address significant and identifiable “pain points.” Building on the need for a sufficient transaction base, we begin by analyzing the size of the potentially impacted segment of the market.
In relation to simplification, we also evaluate the potential for utility optimizing calculations by coordinating transactions between multiple parties. A great example is supply chain management—the numerous contractual relationships must be executed in a timely and orderly manner with the resulting terms being enforced; otherwise, the system breaks down.
Another related factor is the importance of provenance. In other words, what are the origin and complete history of a product? Industries in which potential hazards exist from defective or contaminated products will find additional merit in blockchain technology. Buyers and sellers will both benefit from improved access to information.
Next, we address the importance of speed of delivery/execution, as well as overall timeliness. In some industries, a first-mover advantage is important. In others, it may be better to sit back, let the market develop, and learn from the mistakes of others. Google and Facebook are classic examples. In some industries, it may make sense to seek outside investment and take the plunge, while in others, it makes more sense to grow organically and begin with transferring non-essential activities onto the blockchain.
Finally, blockchain can fulfill needs in emerging markets. Some of those needs are connected to the expansion of trust in the absence of a central authority, while others are more closely related to providing low-value services in a cost-effective manner.
Attainability
In the supply chain, a robust infrastructure must be in place to support the successful execution of successive transactions amongst multiple parties. For our analysis, we determined in which industries the dominant players would have the financial resources to build an infrastructure that is scalable, secure, and allows interaction amongst organizations with differing technologies.
For another perspective, a team from the University Pennsylvania’s Mack Institute created an evaluation matrix based primarily on two criteria, the Interparty Transaction Index (ITI) and the Infrastructure Readiness Index (IRI). (To read the article and download the white paper, click here.)
In addition to building the infrastructure, the key stakeholders must work together to establish standards of conduct in the absence of regulation and work with regulators to minimize any potential detrimental impact from overbearing regulation. At Bitcoin Market Journal, we share in this mission.
Next, we evaluated potential threats. One concern is vulnerability to powerful, entrenched incumbents, who are threatened by the change. Any groups that may be disintermediated by this new technology, if they are unwilling or unable to adapt, may actively work to block its adoption.
Although less obvious, but potentially as threatening, is the resistance from organizations, especially those that are already profitable, that must overcome internal inertia. Despite significant blockchain potential, they may not have the necessary risk tolerance or long-term perspective to cannibalize their current profitable activities to position themselves for future success.
Finally, despite the exuberance surrounding blockchain and the blockchain clubs popping up at the world’s leading universities, there is still a shortage of talent. A clear need may be present and identified, and sufficient funding may exist to support a venture to meet those needs, but without the human capital to implement the project, it will not happen.
At Bitcoin Market Journal, we hope that you will use this analysis as a framework for evaluating your investment opportunities, not only in the context of the specific token project, but also in terms of its relationship to its overall industry.
For a continuing in-depth analysis of the digital asset landscape, take a moment to subscribe to the Bitcoin Market Journal newsletter today.
Evan Karnoupakis is a former management consultant, IT consultant, educational consultant, and mathematics specialist. He holds an MBA from the Wharton School of Business and an MAT in Integrated Mathematics from Kent State University. He has provided consulting services in the following industries mentioned in this article: Banking, Education, Energy (Nuclear), Financial Services, Government, Media, Transportation, and Utilities.
