The cryptocurrency/blockchain community has forked into two psychological camps. The first camp is enamoured with all things blockchain and the potential innovation it represents. This camp includes the hyperledger community, company innovation divisions, new cryptocurrency startups and some of the ICO startups. These folks are convinced there is more that can be done from a new improved blockchain.
In the other camp; the cryptocurrency lovers, the ‘crypto-democrats’ , libertarians and the anarchists. These individuals are just as enamoured with the potential of what the internet of money (via Bitcoin), its forks, Ethereum and some of the other top ten like Dash and Monero can achieve. It’s the democratisation of money that they love. And, as Andreas Antonopoulos says “Bitcoin is going to win because it’s open. In a world of tinkerers, of experimenters, and of makers, open wins. The reason it wins is that it allows innovation to flourish at the edges.” I would argue he is right!
My sense of it is that the blockchain camp are merely building a better mousetrap in the hope that something will flourish. For my (crypto)money, the future lies in an open, consensus based ever evolving cryptocurrency – including a small cluster of evolving cryptocurrecies other than BTC and its soft forks (SEGWIT/2x). These include Ethereum, Monero, DASH, ZCash and Litecoin. These Cryptocurrencies and their respective blockchain’s have at their core, a fundamental economic model and differentiator that allows them each to drive demand and sustain themselves.
No doubt there are use cases abundant and many a coder is now ‘smashing’ out extensions to the original blockchain source code that shows real promise. What I don’t see in these ‘innovative incarnations’ is a plan on how to reach the ‘network effect’ that BTC et al now enjoy. Incorporating that element is critical in achieving that Fundamental Sustainable Economic Model (FSEM).
Here’s an example: Hyperledger is an umbrella project of open source blockchains and related tools, started in December 2015 by the Linux Foundation, to support the collaborative development of blockchain-based distributed ledgers”. All good so far, in fact, a seriously powerful initiative that provides the tools to innovate in this space. ‘Hyperledger Fabric’ is IBM’s offering that “… is a business blockchain framework hosted by the Linux Foundation intended as a foundation for developing blockchain applications or solutions with a modular architecture. Hyperledger Fabric allows components such as consensus and membership services to be plug-and-play.” Here is the thing; one of the core things that IBM’s offering includes is that it “Does not require mining and expensive computations to assure transactions”. That implies that there is another way to assure the transactions which is fair enough. Part of their economic and business model will need to also to spawn nodes? So, I ask – what will drive the creation of enough nodes to reach critical mass to run a consensus network and reach the ‘network effect’ required?
Are we reinventing the wheel here? Like roads and railways, and electricity, the infrastructure is here, lets make it safe so we can plug in appliances like toasters, cars etc.
Ripple (XRP) suffer from the same ailment where the ‘closed system’ approach tries to be two diametrically opposite things simultaneously. 1. it seeks to run N – Nodes across a community of actors/members who have a consensus algorithm and distributed ledger as their core operating system, all the while 2. tying in all the actors to a commercial agreement that has T&C’s that they need to comply with or be ’switched off’. That sounds like they are trying to have both frameworks and ideologies happening simultaneously. You either trust the system hands off or you don’t. I suggest the innovation initiatives by banks and other large corporates who rely on the traditional business models are doing the same.
The ‘secret sauce’ is the achievement of a network effect of any blockchain based venture. Reaching this network effect via demand/supply economics built into the core business system, becomes the digital infrastructure that the business community can ‘plug’ our innovations into.
I would go one step further, businesses need to consider the value of delivering digital appliances that ad value with a transaction based business model rather than a subscription based one. One that not only earns revenue, but does so into a corporate cryptocurrency wallet not a monthly subscription fee. Monthly subscription business models will give way to a ‘user pays’ demand based business model. A Cryptocurrency transaction based business model allows customers to pay for digital appliances that deliver utility. It archives this cheaply and easily and can be unplugged the minute the utility offered ceases.
Finally;
1. Anything closed loop is high risk and possibly doomed due to the lack of a network effect. Even more doomed are the blockchain initiatives that also include a traditional contract with T&C’s that mean if you don’t comply you get cut out of the block (see Ripple/XRP).
2. If a distributed ledger solves a security problem then I think you have an issue. If swapping out blockchain and distributed ledger and replacing with a secure database on a central server makes no discernible difference to the value proposition; you have a problem.
3. When deploying a new BlockChain based venture, the challenge is how to get scale within an economic and gameifide network that will compel nodes to run outside the direct control and oversight of a person or business, not just how to get scale. This type of scale gives you FSEM. So, you either use a network that already has these elements and bolt in appliances, or you build your own. By building your own, you are adding complexity and risk. If you are doing that you better cost that in to your hurdle rate when doing your ROI calculations.
Author: Peter Christo
Twitter: @peterchristo
eMail: [email protected]
The Author: Peter Christo is a Digital Management Consultant having worked primarily in the financial services technology industry (Fintech). He is currently working with ASX Listed company Novatti Ltd (www.novatti.com) in the mobile money and payments space, digitising economies in the Pacific, the North and South East Asian regions. Peter has been advising on Cryptocurrency based projects and also heads up the China Payments Joint Venture for Novatti and Latitude Technologies NZ. Peter is a public speaker on the realities of new digital venture management and a speaker and publisher on cryptocurrency and the future of the digital economy. Peter holds a Masters Degree in Entrepreneurship and Innovation (MEI), along with a Bachelor of Economics & Marketing.