Here’s What You Really Need To Know About Blockchain

In 1970, a scientist at IBM Research named Edgar F. Codd make a remarkable discovery that would truly change the world. Though few realized it at the time, including IBM, which neglected to commercialize it. It was called the relational model for the database and it would spawn an entire industry.

Yet while today few have heard of relational databases, everybody seems to be talking about  blockchain. Much like Codd’s idea nearly a half century ago, blockchain represents the opportunity to create a new data infrastructure, which in turn, is likely to help power business for another half century.

Still — and very contrary to the current hype — few of us will ever work with a blockchain or even know it is there. The real revolution will come not from the technology itself, but from its secondary effects in the form of new business models. To leverage these though, you will first need to understand how Edgar Codd created the data economy in the first place.

How Relational Databases Changed the World

Imagine taking a trip back to 1980. Ronald Reagan was just elected President, and Terry Bradshaw led the Pittsburgh Steelers to yet another Super Bowl. Just a year before, Larry Ellison and two friends launched the first commercial product based on Codd’s ideas. Two years later, they would change the company’s name to Oracle.

Now imagine trying to explain to someone in 1980 what they would use a relational database for. Back then, few people used computers, which were primarily used for back office tasks and heavy computational jobs like scientific research. Very little that relational databases did was relevant to how people worked back then.

What made relational databases important is how they changed how we could manage data. They made data fungible. Classical or “flat file” databases worked very much like an Excel spreadsheet. They stored data in a columns and rows which lacked flexibility. You really needed to know how the database was set up to find the information you needed. Anybody who has tried to understand someone else’s spreadsheet knows what that’s like.

With relational databases, however, all you need to know is the query language and you can extract what you need from any database, no matter who set it up. That’s why today, we can hop on a system like the Internet and pull data from just about anywhere we want. It’s what made the information age possible.

Why Blockchain Matters

Relational databases were designed for centralized computing. Data was stored in a mainframe and we would use a terminal — and later a PC — to get information out. For example, executives use ERP software to pull data from far-flung operations and manage business processes more effectively. Marketers access research databases to understand consumers. Salespeople leverage CRM systems to service their customers.

Today, however, computing is no longer centralized, but radically decentralized. We carry smartphones in our pockets that are more powerful than what would have been considered a supercomputer back when relational databases were invented. We use those devices not only to retrieve information, but also to send it to centralized databases, often without knowing we’re doing it.

That creates an information bottleneck that is often insecure for a number of reasons. First, while most commercial databases are encrypted, data needs to be unencrypted for us to use it, which leads to problems like the one with Facebook and Cambridge Analytica. Data is also unencrypted at the source, so firms can access our data and store it without us having any control over it.

The most salient aspect of blockchain is that it functions as a distributed database. Unlike relational databases that house data in one location, blockchain distributes data everywhere at once in a secure form. So we can track data wherever it goes, what it’s used for and see who alters it in any way. That will create a radically more transparent information economy.

What a Killer Blockchain App Will Look Like

In a recent conversation I had with Bernie Meyerson, IBM’s Chief Innovation Officer, I asked him what he was most excited about. Thinking he would talk about the Watson program or a futuristic research project, I was somewhat surprised that the first thing he mentioned was his company’s joint venture with Maersk to develop a blockchain infrastructure for global trade.

With everything going on at IBM, from artificial intelligence to developing new computing architectures like quantum computing and neuromorphic chips, shipping seemed a bit low brow to me. Nevertheless, once I started digging into the numbers I could begin to see what he meant. Blockchain really can have an extraordinary impact on global trade.

Consider the fact that a 2013 study by the World Economic Forum found that reducing back-office friction in international trade could increase GDP by nearly 5% and commerce by 15%. Global GDP amounts to about $80 trillion, which means you’re talking about a $4 trillion potential impact. If even a fraction of that pans out it’s huge!

The thing is, nobody is going to buy a product and say, “Wow! This is 5% cheaper thanks to blockchain!” The truth is that no one will ever see it. Blockchain, much like the relational databases that came before it, is technology infrastructure. It’s basically like paved roads were to cars — an absolutely essential enabling technology, but not a “killer app.”

Where to Find the Next Big Thing

Over the next decade, we’ll see the impact of blockchain unfold, but it will look a lot more like the IBM-Maersk joint venture and Oracle than the next Google or Facebook. If you don’t work with a relational database now, you probably won’t have much to do with blockchain in the future.

Still, that doesn’t make the impact any less real or exciting. Much like the Internet distributed computing, blockchain will distribute secure data and that is likely to radically increase transparency and security while reducing costs. “Disintermediation” is a term we can expect to hear a lot of in the future.

For example, Hu-manity.co is a new startup that plans to give patients more control over their health data. Today, when we sign a consent form for our data to be used for research, we essential give it away. However, with blockchain, we will be able to track it, decide for ourselves how we want our data to be used and even be reimbursed for it.

So if you want to know how to profit from blockchain, start looking for information bottlenecks, like global shipping or medical data. Eliminating those bottlenecks is how blockchain will truly change the world.

– Greg

An earlier version of this article first appeared in Inc.com