François Fleutiaux

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Blockchain: the digital revolution is disrupting itself

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An article by Francois Fleutiaux, Director of T-Systems’ IT Division.

François Fleutiaux

Francois Fleutiaux, Director of T-Systems’ IT Division.

It wasn’t long ago that public companies announcing new blockchain initiatives saw their stock prices soar. But that all changed when the cryptocurrency market took a dramatic plunge in January. Bitcoin and other cryptocurrencies lost 70 percent of their value in just three months. Does this also mean the end of the blockchain – the innovative technology enabling transactions with digital assets? Probably not, because blockchain technology can do more than just bitcoin accounting.

I still believe that the blockchain is a genuine key technology and agree with trend researcher Roy Amara. He noticed back in the 1920s that people “tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run“.

Secure transactions without an intermediary

I think the same is true for the blockchain. But what exactly is the blockchain? It’s a decentralized, immutable, transparent, digital database that also functions as an automatically reconciled digital ledger of transactions. No intermediary is necessary because the blocks of information are absolutely transparent and incorruptible, so transaction security is guaranteed. Blockchain technology even creates trust in transactions between strangers without the need to use a neutral third party such as a notary public, a bank or PayPal.

There are many other applications for the blockchain aside from transaction processing. The most well-known and possibly the most interesting business application for blockchain technology is smart contracts. Blockchain technology allows for the coding of contracts (simple or complex) that will automatically execute in real time when specified conditions are met. They completely rule out any possibility of human error.

By enabling peer-to-peer transactions, the blockchain offers major advantages in direct interactions between parties. It eliminates the costs for an intermediary – such as notary or land register fees when you buy a house. Peer-to-peer transactions are also faster. The blockchain could potentially make many traditional occupations obsolete. If the need for intermediaries is eliminated, what will all the lawyers, estate agents, bankers and retailers do in the future? It even poses a threat to some of the more recently established companies. Firms like Uber, Airbnb and Spotify provided experiences for markets to take shape. But what will happen to these firms when they are no longer needed as intermediaries? The digital revolution is disrupting itself.

The big disruption: digitalization

The best example of a successful digitalization disruption: the music industry. At first, the songs were converted into zeros and ones and stored on CDs. Then the music retail business migrated to the internet, because the customer could now listen to song samples via computer. After a while it dawned on people that CDs weren’t actually necessary any longer, so the next move was from letterbox to download. Music had never been so inexpensive – and it was even available for free on illegal sharing platforms such as the old Napster – the first widely used P2P network that is notorious for putting an end to the music business as we knew it.

That was the birth of music streaming – and of Spotify. It identified a gap in the market and positioned itself as a legal alternative to pirating. The company’s business model is to offer customers 30 million songs and no advertising for EUR 9.99 a month. It turned the Swedish startup into a market leader – ahead of big players like Apple and Amazon within the space of a few years – with 159 million active users and 71 million paying subscribers.

The next disruption: blockchain

But is music streaming in it’s current form a sustainable concept? Blockchain technology has the potential to shake up the music industry again. What if fans and musicians were able to connect directly? In summer 2017 DJ RAC released his album “Ego” on the blockchain platform Ethereum. Icelandic singer Björk did the same thing in November, and she also gives away 100 Audiocoins to everyone who buys the album.

The Musicoin is another digital currency that was created to enable direct payments to the artists. Each time a song is played on the Musicoin platform a digital coin is credited to the artist from the user's account. Musicoin is a pay-per-play (PPP) system that processes payments in seconds. It's a decentralized, highly transparent platform powered by smart contract functionality that can even allocate shares of the revenue to different contributors: 50 percent goes directly to the song writer, 25 percent to the singer and another 25 percent to the guitar player.

At the end of 2017 there were 1,500 musicians on the Musicoin platform. Although the early stages of digitalization were associated with some financial hardships for the artists, the blockchain is an opportunity for them to tap into new and fair revenue sources.

The blockchain is not hype

Like the big disruption of digitalization, this second disruption has hit the music industry first. If it accepts the challenge it’ll be able to demonstrate just what the blockchain can do apart from cryptocurrency accounting.

I’m convinced that the blockchain isn‘t hype. It’s a potentially revolutionary technology. It creates an incorruptible, decentralized ledger that automatically verifies and monitors identities, contracts and transactions. It is also a truly public ledger providing transparent and instant access to information for anyone in the world. This key technology is poised to fundamentally change our business models – and revolutionize our society.

François Fleutiaux

François Fleutiaux

François Fleutiaux, member of the T-Systems Board of Management

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