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The 5 Kinds of Blockchain Projects (and Which to Watch Out For) – Harvard Business Review


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Blockchain burst on the tech scene ten years ago with the launch of Bitcoin. That first introduction led many business leaders to see blockchain and cryptocurrencies as synonymous. In fact, blockchain’s value proposition is far broader. At its most basic it allows two or more people, businesses, or computers to exchange value in digital environments without having an intermediary like a bank or a third-party platform between them. In other words, blockchain redefines the terms of trade for the digital economy.

Consider, for example, how a car insurance blockchain could store policy details and contract rules and automatically process third-party claims, improving efficiency and reducing fraud; or a hospital blockchain could capture medical records and share them on-demand with authorized providers; or a blockchain could capture the custody trail of French wine all the way back to the vineyard, or diamonds to the mine, reducing counterfeiting.

Each of these solutions already exists, along with scores of others. Despite widespread experimentation, however, blockchain is still young and evolving. Today’s experiments often use only some of the core elements that make a blockchain, while rejecting others. In particular, today’s blockchains rarely include tokens, and their technology architecture is almost never decentralized, as was intended in the original blockchain design. What that means in practice is that many blockchain solutions available today are owned and governed by a single company or small group, and only authorized participants can join. (The Bitcoin blockchain, in contrast, has no single owner, and anyone who wants to can participate.)

Centralized governance has allowed business leaders to experiment with the technology while sidestepping controversial questions around security, consensus, identity and anonymity, among others. Yet the centralized model also creates new risks around how the technology, economics and governance of the blockchain are controlled, particularly as it relates to four business “currencies” produced in digital environments. These currencies are:

1) the data about participants and transactions that the solution accesses, collects and/or generates

2) the contracts that define the commercial terms and conditions of participation

3) the access to a given market

4) the technology from which a blockchain is built

When one company or consortium of companies builds a centralized blockchain, that dominant company can theoretically own the technology, capture and centralize the data, control who can access (or not access) the solution, and set the terms of the contracts.

Of course, not all blockchains have powerful owners, and not all owners want to exert long-term control. Some solutions are highly centralized with one owner or group of owners controlling the currencies, while others exert less absolute control.

To help business leaders identify the difference we have defined the following five blockchain archetypes based on their degree of centralization:

Archetype 1: Fear of Missing Out Solutions

FOMO solutions are completely centralized, as they often led by a single company for use in-house or with a very limited set of partners. They usually come about because the company wants to be seen as innovative, but hasn’t fully considered how the blockchain will add value to the business, or whether it is the best technology for the job. As a result, FOMO projects might be blockchain shoehorned into an existing tech initiative for which it is ill-suited. Depending on where the order originates, even very senior leaders might feel like they have no choice but to go along. As the CIO of a regional financial services firm told us, “You don’t understand; my CEO told me to do blockchain.”

Although FOMO blockchain solutions won’t create much value, they aren’t always pointless. They could send a message to the market that your organization is on top of current trends. Prospective customers might give you a second look. Competitors might invest time and resources for similar FOMO reasons.

Beware, however, of FOMO backlash. When a poorly planned project produces little value, leaders might erroneously conclude that they “tried blockchain” and failed, when they simply had the wrong use case. These solutions could also burden existing systems and processes and create additional costs that bring no increase in efficiency.

Archetype 2: Trojan Horse Solutions

For this archetype, one powerful actor such as a digital giant, a dominant supply-chain participant, or a small group develops a blockchain solution and invites other ecosystem participants to use it. We’ve dubbed these solutions Trojan horses because they look attractive from the outside. They have a respected brand behind them. They often have strong technological foundations. They usually address known, expensive, and wide-reaching problems in an industry. But they may also require participants to share their company’s data and transfer some control or influence in a way that leads to market consolidation for the main blockchain owner.

Walmart’s food-tracking blockchain is a potential example of a Trojan Horse solution. Walmart cited food safety as its rationale for launching it, which makes sense. In the non-blockchain environment, it can take weeks to pinpoint the exact farm or processing plant responsible for a contamination, and dozens of people can fall ill in that time. Complete, accessible records will allow stores like Walmart to more quickly find the origins of a contamination and stop it at its source. The Chinese e-commerce giant Alibaba has a similar solution it launched to improve tracking and tracing of agricultural products and prevent the sale of counterfeit milk, wine, and honey, to name a few.

The risk for the participants on Trojan Horse blockchain, however, is that they become dependent on the owner’s technology and locked in to the contract terms. Over time, the Trojan Horse could exert more control over the market as it amasses supply-side data. The business currencies in a Trojan Horse archetype would trade at a high risk level for participants.

Archetype 3: Opportunistic Solutions

Opportunistic solutions aim to address known problems or opportunities around record-keeping that are ill-served by existing solutions. Examples include a blockchain solution in development by the Australian Securities Exchange to streamline financial trading. The Depository Trust and Clearing Corporation (DTCC), the post-trade clearing and settlement intermediary for the US financial system, likewise created a blockchain for managing records from credit-default swaps.

Opportunistic experiments can bring value to participants, even if they don’t lead to a live, operational platform. The former CIO of a Middle Eastern bank who shared his experience launching a blockchain initiative that was shut down within six months said the experience helped the bank gain confidence in blockchain, while his staff acquired new technology skills. “We got good experience of how it all worked, we spent [very little], and our tech exit strategy maintained the client experience.” He added, “It was good PR for the bank!” Opportunistic solutions may present some loss of control over data and contracts. But as the bank CIO acknowledged, the solutions offer experiential payoff.

Archetype 4: Evolutionary Solutions

Blockchain solutions in the evolutionary archetype are designed to mature over time to use tokens with decentralized governance. One example comes from an unlikely source: UEFA, the central governing body for European football. UEFA is working with SecuTix and TIXnGO, Swiss technology companies that are part of the Swiss IT company ELCA Group, on an evolutionary solution drive a safer and more equitable secondary market for football ticket sales.

The platform works by prompting a ticket buyer to download the SecuTix and TIXnGO app. The app is connected to a blockchain, and tickets are tokenized so that the platform can record the ticket purchase and link its ownership details. If an owner wants to give a ticket away to a friend or family member, he or she can do that through the app, which sends the record of the transfer to the blockchain. When a ticket holder wants to put the ticket on the open market, the SecuTix platform defines the markup resellers are allowed to charge. This practice prevents price gouging and limits the incentives illegal brokers have to participate.

Overtime, the secondary market for tickets could evolve into a decentralized sales network that connects all the secondary ticket sellers in that ecosystem. The business currencies in an evolutionary solution would trade at a low to moderate risk level for participants.

Archetype 5: Blockchain-Native Solutions

Solutions in the fifth and final blockchain archetype are either developed by startups or by innovation arms of existing firms to create a new market or disrupt an existing business model. They may not start out with tokens or decentralized governance, but they are designed to move in that direction as the market matures.

One sector with blockchain-native activity is higher education. Woolf University, founded by a group of academics from Oxford and Cambridge, aspires to be a nonprofit “borderless, digital education society,” a decentralized Airbnb for degree courses. Woolf University connects professors with students via secure contracts and captures a record of the learning exchange so that the student can get credit and the professor can get paid.

Gaming also has a burgeoning blockchain community populated by solutions like Enjin, a gaming platform that allows users to create their own tokens to support their games.

Native blockchain solutions will insert new business approaches into legacy industries. Untested technology will be the major currency risk, though they will appeal to participants who want to control their own data and experiment with decentralization.

Blockchain solutions offer alternative ways for businesses to address known challenges involving data sharing and workflows, but buyer beware of giving up too much control over the business currencies of data, technology, access, and contracts. Weigh your options and tolerance for risk, but don’t let concerns keep you out of the market. The terms of competition in a digital world are being defined now. The real business of Blockchain allows enterprises a chance to win the race.

Adapted from The Real Business of Blockchain: How Leaders Can Create Value in a New Digital Age by David Furlonger and Christopher Uzureau.



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