It is the right time to talk about BlockChain, Bitcoin has hit a record high.
The underlying technology Blockchain has been touted as the next big technology revolution after the Internet. It is now de rigueur to say that yes, I understand Blockchain. Just to make it a true statement here is the lowdown.
What is Blockchain?
Blockchain stores information in a network of personal computers (peer to peer network on internet) making them not just decentralized but distributed. This means no central company or system owns the system, yet everyone can use it and help run it. The people who run this system hold bundles of records submitted by others known as “Blocks” in a chronological chain. The Blockchain is public; anyone can view it at any time because it resides on the network, not within a single institution in charge of keeping records.
Every ten minutes, all the transactions conducted are verified, cleared and stored in a block which is linked to the preceding block , thereby creating a chain. This is the process of achieving consensus between all the blocks. No one person can tamper with the ledger and wrongly claim ownership of a transaction that doesn’t belong to him/her as rest of the people in the Blockchain will contradict his claim. Hence, Blockchain is tamper proof. It is encrypted as it uses heavy-duty public and private keys to maintain virtual security.
Blockchain’s first killer app, is a form of a digital cash called Bitcoin (also called cryptocurrency) that you can send to anyone even a complete stranger.
Despite initial finance-related interest in Blockchain technology, it has gradually outgrown its Bitcoin roots and is now believed to play the role of trusted gatekeeper and purveyor of transparency. Yes, Blockchain is being considered to be the ideal underlying technology to build the base of the emerging Trust Economy.
Blockchain is supposed to do wonderful things in various domains. But let’s talk about Blockchain and its impact on the world of advertising and consumer purchase decisions.
Trust amongst strangers in digital transactions influences purchase decisions
When buying a product online (say on Amazon or any website for that matter), your decision is based on the number of positive customer reviews, product ratings, number of likes etc. provided by strangers. Research has established that the driving force behind consumers to search for online reviews is the problem of asymmetric information (consumer knows that the seller knows more than her/him about the product, and s/he cannot trust the seller). Which means the consumer knows that s/he cannot get the complete/relevant information about the product from the Ad itself before buying. So they have to rely on online reviews before buying, in order to become better informed.
Which goes to show that we are perfectly fine in this digital world with the feedback from strangers/Electronic-Word of Mouth (E-WoM) for decision making. It was eBay’s Pierre Omidyar, who started the ground-breaking online feedback system that allowed people start trusting the aggregated review of strangers. Omidyar did this by providing a mechanism for individuals to easily communicate about trustworthiness of others, giving a far larger group of people the chance to reliably place their faith in The Wisdom of Crowds.
Who could have thought that in this digital world, people will be okay with taking decisions based on the feedback from strangers!
True. We trust strangers and more so when in a crowd. i.e. The Wisdom of Crowds!
“In God we trust“, but as far as spending the penny is concerned, we can as well say, today in 2017, “In Crowds we trust”.
The online feedback system is now central to the business model of digital platforms such as Amazon, Airbnb, Uber, eBay etc.
So how does the consumer buying decision change with Blockchain?
Let’s go to the basic of Advertisements and how they influence consumer purchase decisions. Advertising as defined in Marketing theory, is mass, paid communication, the ultimate purpose of which is to impart information, develop attitude and induce action beneficial to the advertiser (generally the sales of a product or service).
Advertising as Information
The most important reason for advertising is to simply inform people of existence of products that they might be interested in buying. Only when one know that a product exists, will one buy them. However, all of us will agree that advertising is obviously not a source of objective or unbiased information. Advertisers only highlight the bright side of the product.
Advertising for Influencing
Yes, Advertising is not just for informing, but a persuasive medium designed to ultimately influence your purchase behaviour. It may not be the smarter decision for you, but it is definitely good for the seller. In short, Ads are by a single biased entity. It is a classic case of information asymmetry and biased ab initio towards the seller. How does the advertiser get your trust or get you to agree with him? They may get a celebrity (like a film star or sports personality) endorsement and win your trust because of classic halo effect
In reality, Ads are not particularly trustworthy as an information source. Ad is designed for convincing you irrespective of whether that is the best decision/product for you.
Blockchain Redefines Trust and Digital Reputation
Now we come to Blockchain. Imagine the first mechanism of the wisdom of crowds, strengthened manifold. Which is what Blockchain can/will do. Yes, that is practically possible. Don/Alex Tapscott have written a highly readable, outright foundational book about the future of modern economy- “Blockchain Revolution: How the Technology behind Bitcoin Is Changing Money, Business, and the World”.
So, what’s your Digital Reputation?
Reputation is critical in business and everyday life. Tapscotts explain, Blockchain enables reputation systems where members can rate another’s performance as collaborators without having to go through a neutral central authority, thereby, syndicating trust in community. To quote from their book- ‘Now imagine the opportunities that arise from the ability to search the World Wide Ledger (Blockchain), “Who is qualified to handle this project? What medical skills does our hospital have on staff? Who performed what type of surgery with what outcomes? How many carbon credits has this company saved? Which suppliers have experience in China? What subcontractors delivered on time and on budget according to their smart contracts?” The results of these queries won’t be résumés, advertising links, or other pushed content; they’ll be transaction histories, proven track records of individuals and enterprises, ranked perhaps by reputation score.’
In effect, Blockchain becomes a Trust Machine: A Machine for creating trust as stated by The Economist article-” The promise of the blockchain- The trust machine”
So what aspects of our life will be rated and scored in a Trust Machine? Netflix’s interesting series “Black Mirror” season 3 episode 1- “Nosedive” depicts a dystopian state where people rate one another on every single interaction and this reputation score impacts almost every aspect of individual in the society, both social and financial.
The Chinese government is already planning on implementing a centralized system that connects citizens’ financial, social, political, and legal credit ratings into one big social trust ability score.
Blockchain powered trust currency will give a great boost to consumer purchase decisions which are currently driven by the wisdom of crowds. From trusting strangers we could graduate to trusting the views of people who have earned the trust and can establish the same in the public ledger. Celebrity endorsements may no longer be necessary as the Blockchain users now knows good from the bad, separate wheat from chaff, and the baby from the bath water…..
As a society, we are now comfortable trusting aggregated reviews of unknown individuals, forming the foundation of the Trust Economy. Blockchain brings in greater transparency and is set to improve the trust economy. The distributed ledger (Blockchain) technology allows for secure decentralized storing and sharing of data. In Blockchain, every person’s individual weight/reputation score can be known which is called the Trust Currency. In the pre-Blockchain era, Person X and I rating a product will carry equal weight. But not anymore in the Blockchain era. One man one vote is good for democracy but not necessarily for correct decision making. And this is where Blockchain will make a difference. Consumer purchasing will rely more on the Trust Currency. With Blockchain here to stay traditional advertisements and celebrity endorsements can go take a dive.
Welcome the informed Blockchain powered user.
A Blockchain Disclaimer
I am all for Blockchain. But as per Gartner’s hype cycle for emerging technologies, Blockchain technology is very near at peak of the hype cycle and at the stage of “peak of inflated expectations”. Yes, it will be followed by a trough of disillusionment. But I assess, the plateau of productivity would be way higher than the current peak.