We Need BlockChain, But Not for the Reasons You Think.

The biggest use for blockchain right now is to support digital currency, namely bitcoin, and secure trade of that currency. And since it has the potential to revolutionize e-payments, everyone is talking about it. But let’s face it, your employees don’t take bitcoin, your suppliers probably don’t take bitcoin, and your customers aren’t paying in bitcoin. Most of your employees want direct debit, your contractors want checks, and your suppliers probably want ACH. Bitcoin and blockchain is the furthest thing from their minds and, thus, is the furthest thing from yours.

But there is one use for block chain, and that is, simply put, the secure transfer of IOUs. What do we mean by this? About a year ago we penned a post that asked With Currencies Crazy, Is It Time to Return to Barter. In this post we asked what if there was no exchange of currency. What if it was an exchange of a raw material or service for another raw material or service, where each raw material or service came from the organization or a partner in the same country. Since the value of a product or service, adjusted for inflation, is relatively constant over time and since the relative value of one versus another is also relatively constant over time, such a contract would not be subject to rapid changes in value differences regardless of what happened in the currency markets.

Now imagine if instead of trading raw materials, you could trade IOUs and send them up and down supply chain until all of the differences could be settled within a country. You wouldn’t need to exchange raw materials with a company you might not want to, and, more importantly you definitely wouldn’t need to deal in non-native currencies. You could just settle those IOUs with in-country in-currency bank transfers, clear out the IOUs, and all would be settled.

Up until now, there has been no way to securely trade those IOUs. You had to trade payments in banks. But now, with the advent of blockchain, you can trade those IOUs simply by creating an IOU cryptocurrency specifically for keeping track of all the barters. And, if you’re not sure how to optimize the trading of IOUs, we gave you a great idea on how to do that in our post on With Currencies Crazy, Is It Time to Return to Barter — you build a special, shared, supply chain optimization model that allows all participating entries to upload their data and opt-in to in-currency barter optimization and then trade the IOUs through the new cryptocurrency and only the final imbalances in each country need to be paid. It’s the future …