Could Blockchain have Saved Blockbuster Video? – Part I

For the last several months, I have seen countless posts in my feed espousing the potential of blockchain to revolutionize the world as we know it.

The benefits listed always include zippy words like “disruption,” “transparency,” and “challenging the status quo,” and the articles go on to describe how implementing blockchain technology will deliver some sort of utopian future for whatever industry is featured.

My interest was piqued, as it was clear this wasn’t going away anytime soon.

After several weeks of research about decentralized ledgers, private key cryptography and other articles on IT topics that went much deeper than I normally would wade, I can clearly and confidently report back:

Blockchain technology is a new way to conduct transparent, secure transactions.

That’s it, really.

But that alone didn’t explain all of the hoopla. I needed to better understand both why and how this technology was so appealing. I realized there were 4 fundamental questions I was trying to answer:

  1. What are the promised benefits of blockchain technology that are specifically driving all of this excitement?
  2. Why are the key players of certain industries so drawn to the promises of a blockchain solution?
  3. Is blockchain really the best solution to solve these problems? And the one we’re all dying to know:
  4. Are there other industries, like the ill-fated DVD rental business Blockbuster, that blockchain could have helped?

Here’s what I found:

1) BLOCKCHAIN BENEFITS – I’m not going to describe how blockchain works (if you are interested, a good summary can be found here), only what makes it such a seemingly improved way to conduct business. The features that draw the most adoration from folks are:

1) Transparency – all transactions are recorded immediately and held redundantly, so once something happens on the system there is no chance for someone to attempt to fudge the books after the fact. Every transaction is recorded exactly as it happens and is kept forever. This is a huge draw for certain people in industries where one party holds all of the cards, as I’ll discuss below.

2) Security – only the parties invited to participate (i.e. those with a copy of the digitally encrypted key) can see the specific transaction data, period. Furthermore, as records of all transactions occur multiple times across a vast decentralized array of databases, the threat of compromise if a single database either going down or being tampered with is effectively eliminated.  So there is strong protection against both data theft and targeted cyber attacks.

3) Simplicity – since all transactions can only be accessed directly between two parties, the need for middlemen to validate things (adding time and the potential for human error) is eliminated, exponentially speeding things up while greatly reducing cost.

Sounds groovy, right? So now the second question: what is it about the nature of the certain businesses (the ones that seem to be the subject of many of these articles) that blockchain solutions generate so much excitement?

2) INTERESTED INDUSTRIES – Although many organizations are exploring the potential benefits of applying blockchain (health records, voter validation and food safety/tracking are all pretty noteworthy), I focused on three:

Financial Services: There is a reason this technology emerged around money: solving for inefficiencies in financial transactions remains the best use of blockchain to date. Digital Gold by Nathaniel Popper does a great job describing the early days of Bitcoin and the dreams of the original cast of characters that developed the first real cryptocurrency.

For the more radical among them, the promise of a decentralized currency outside of the control of any government was financial utopia, particularly for those who had lived through episodes of hyperinflation somewhere. For others, it was the practical, productive nature of “frictionless transactions” to dramatically increase the efficiency of acts like wiring money internationally.

Of course, this “untrackable money” also became the main means of exchange for folks engaging in illicit behavior on a host of darknet sites like Silk Road – an association that has continued to create problems for cryptocurrencies with governments around the world.

 Music: Artists have been fighting their record labels, producers, managers and others for decades over gross underpayments and outright fraud. Recording artists today must rely on digital music stores and streaming services to accurately report how often their music was purchased or played and distribute their appropriate royalties, which many artists feel are an unacceptably low rate (<20% of the purchase price) to begin with. But most artists don’t have the market power to work around the dominant digital distribution partners.

In response, startup music streaming platforms like OPUS, with the stated goal of flipping the royalties paid to artists on their platform to >95%, are removing the middleman and using blockchain technology to provide complete transparency for all parties.

Digital Display Advertising: Programmatic’s promise of revolutionizing the world of display by employing real time bidding (RTB), unparalleled efficiency and incredible targeting also came with a dark side: enormous potential for fraud (both with BOTs and ad viewability), ad misdirects and the frequent appearance of blue chip advertisers on unsafe or unsavory sites. All of the transparency challenges that advertisers faced with ad networks became even more pronounced with double blind exchanges.

In my experience, almost no one across the RTB ecosystem seems to be eager to share – at least with any precision or consistency – exactly what is happening at the impression level. Or if they do, they cannot (or will not) articulate it very well. As such, clients (and agencies) are eager to find solutions to remedy this, and several blockchain startups are aiming to do just that.

But stepping back for a second, in all of these areas, the problems are really rooted in just two things that are fundamental to a successful long-term business:

Money. And Trust.

Blockchain has the ability to truly disrupt certain industries that have developed with an asymmetrical distribution of information and profit.  Anywhere business systems matured with a monumental lack of transparency that allowed a few players to sit comfortably in the middle of the process – where they control the distribution, information and money flow for disproportionate gain – there is a significant demand by the majority to shake things up. Of course, those who currently have the control have no interest in changing anything.

But you can see the appeal. Bitcoin promised, among other things, to significantly reduce the time and fees of financial transactions across the economy, as well as eliminating many of the error-prone human touch points. All of the processes and verifications that were once necessary have been made largely irrelevant by the technology of digital contracts and keys utilized by cryptocurrency, and yet the banking status quo remains. Virtual currency could also be a viable alternative place to store capital for the citizens of corrupt or inept governments, where hyperinflation could destroy the personal wealth of anyone whose assets are stranded solely in the local fiat currency.

Musicians are also immediately drawn to the ability to get accurately and immediately paid for their work, which would happen if every stream of one of their tracks or purchase of one of their songs were automatically recorded in a blockchain ledger – which would also effectively eliminate the need for anyone between the artist and the consumer.

Similarly, advertisers knowing where their digital ads actually ran and whether they were seen by real people is clearly of paramount importance for both budget management and brand safety, and a blockchain system where every ad impression was recorded would create true transparency.

For the second half of the story, which will look at whether blockchain is really the right technology solution for these industries – as well as whether this cutting-edge tech could have saved the DVD rental behemoth Blockbuster Video – check back next week!

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