9.3 Blockchain and Disruptive Innovation - Video Tutorials & Practice Problems

In this lesson, we're gonna be talking about blockchain and disruptive innovation. We've talked a lot about blockchain and we've talked about innovation. But in this lesson, I wanna focus on the concept of disruptive innovation. Because this is a key component we need to discuss. As we go through this, I want you to focus on the various elements I talked to you about, and think of it in the context of bitcoin. Because bitcoin was a brand new technology that didn't exist and all of a sudden came along and it's having a massive impact. Take that in as we talk about disruptive innovation. For starters, let's go through the definition of what the disruptive innovation is. In fact, if we focus it on the creator of the concept of disruptive innovation, that's Clayton M Christensen, who's a professor at Harvard Business School. And the way that Clayton M Christensen describes it is it is "a process by which an underrated product or service takes root at the bottom of a market, and then moves its way up the market by improving performance, eventually displacing established competitors." And we're gonna see how bitcoin is taking that curve, and how cryptocurrency may be going in that approach. As we go through this, let's go specifically on previous examples of disruptive innovation by focusing on early mobile phones. If we look at old school mobile phones when the whole thing started, the first models were bulky, and they were very, very expensive. They were like a brick. They just very, very, weren't very practical. They were massively big, weighed a lot. And it just really wasn't very good. Additionally, it offered lower sound quality than landlines. So for a while there, it was kinda like a luxury to use these early mobile phones. They were very heavy and expensive. Now they gave you a new attribute, and that attribute was portability. You were not stuck to having a wire, and being stuck to a wall or wherever you could have a cable. Now cut to today. Mobile phones are everywhere. In fact, 5 billion people have mobile phone connections. Furthermore, over 95% of Americans has cellular phones. And more than 50% of households are wireless only. Think about that. It used to be that everybody had a landline at home. Everybody would use their phone, but all of a sudden now over 50% of households don't have a landline anymore. They basically use their mobile device as their actual landline. And this is a massive shift for the industry, 'cause think about it, if your business is all built on people having these landlines, then basically your business is just completely, you lost 50% of the households as this new technology came along. Now, only 6.5% of households are landline only, think about that. Households that are only landline constitute only 6.5%. That means that even the households 50% that are wireless only, you really think about that. The ones that do have the landlines also have mobile phones. So mobile are everywhere. And that number of 6.5 households will probably keep dropping as mobile phones continue increasing in popularity. Now, another one that's really, really impactful is that only 100,000 phone booths remain in the United States. Let's put things into context. In 1999, there were over 2 million phone, actually telephones that you could go to payphones. And that industry and business is pretty much defunct. Right now you have only about a 100,000 of these phones remaining in the United States. And this is a key key disruption because if you are in the payphone business, your business basically got eliminated and wiped out by the advent of mobile devices. So having looked at disruptive innovation and applied it to mobile phones, let's talk about the concept of can cryptocurrency disrupt banks? And let's look at some details. First thing I wanna talk about is international money transfers, which is actually an extremely profitable business from any financial institutions. In fact, global remittances market is over $613 billion per year. That is a massive number. You think about all that money that's moving around globally every single year. And they are able to get fees between .5% to 3.9% per transfer. So you think about it. You have $613 billion in currency being moved around globally, and the banks are able to get these fees between 0.5% to 3.9% for each one of these transfers. However, the recipient also can be charged for receiving these payments. So the banks are making money both on the sending it and also on the receiving it. So it's a very, very profitable market. And many of the banks build their business on these types of institutions. In fact, some companies are exclusively money transfer companies. Now, some key things about these is that transfers can take from 24 hours to five days depending on the destination where they go. There's a lot of inefficiencies in this money transfer space. So while we're saying that we have a business that's generating $613 billion a year, it's a very inefficient business. And as we said, it can take from 24 hours to five days depending on the destination where they're going. So think about it. It takes you a long time to receive your money. And furthermore, you're getting charged .5% to 3.9% per transfer. There's a lot of efficiencies that could be gained. Now additionally, money transfers are subject to regulations and forms against money laundering. So very regulated space. And it's actually very, very, very looked upon. So this is a very critical and important industry. And right now there's a lot of money that's moving around with many big inefficiencies. Let's bring in cryptocurrencies. When we compare it to bitcoin, we talked about money transfers. And we said that a money wiring service the fees can range between .5% to 3.9% per transfer. We talked about that the recipients may be charged for receiving these payments. We said that these can actually take 24 hours to five days depending on the destination. And that they're subject to regulations and forms against money laundry. Now, let's compare that now to bitcoin. And I'm gonna focus specifically on one transaction just as an example. What you're seeing here is a transaction that took place on bitcoin. And this is actually the live transaction ID. And now that you know that you can go on a blockchain and you can see a transaction. I encourage you to take this transaction ID. Go to a block explorer and take a look at it, so you see what I'm talking about. Let's see exactly what we can see from here. This specific transaction included 66,233 bitcoins which are transferred across 100 different bitcoin addresses. Now, this was actually $275 million worth of bitcoins. So if we look at the time of the transfer, and we count the price of a bitcoin, and we send 66,233 bitcoins, it really meant $275 million worth of bitcoin were transferred and they could have gone to anywhere in the world. Now, if we looked at $275 million being moved through money wiring services, the potential fees for these range on the low end from 1,375,000 that's if you charge .5%, all the way up to $10,725,000, which is 3.9%. That's what it would cost you if you did it using traditional money wiring services. But let's compare it to bitcoin. And in fact, the entire thing costs $43. So you're able to move $275 million worth of bitcoin for $43 in fees. And the entire transfer was received in minutes with no forms to fill. And this is where the threat to traditional money transfers comes from bitcoin.