Blockchains: No Need To Look For A Killer App
Adapted from my original article at Bitnews Today
And those who only look to the past and present are certain to miss the future.
John F. Kennedy
The Question in Mind
At every blockchain conference, from west to east, I hear people discuss this topic on the stage or off: what’s the next killer app in the land of blockchain? what could be the one use-case vastly succeeding in mass adoption?
I see this more of a question on confidence.
Why? Because It hints something very deep and yet worrying on the very existential question of the blockchain — is it going to be useful (really)? Where? And how soon?
It’s natural to meet this skepticism. Ten years past its initial launch, Bitcoin is still the only proven application widely adopted on the public blockchain. Some question if blockchain is pre-mature or over-hyped, others say it’s a hammer looking for nails. While there are proofs-of-concept floating around, few, if any, production-ready blockchain software systems are yet in large use.
A runaway success of some use-case would be a perfect infusion of confidence, a clear market approval, a game changer, to get everyone wake up to the tremendous promises that hopefully blockchain technologies could deliver.
Just like the Super Mario from Nintendo, a sweeping love across all store shelves at Christmas said it all.
Or the AlphaGo. When the human’s world Go Champion Ke Jie removed his glasses and wiped tears with the back of his hand, the entire world was shocked to the power of some super-intelligence. The world plunged into an AI fever overnight.
From the evolution, human beings are so hardwired to trust our judgment on our sensory. We often need to see to believe.
But here are some fundamental flaws in this logic of this “waiting-to-see- to-be-convinced” attitude. For enterprises, this has been proved to be very risky in history.
Back in last quarter of 2007, the top 5 mobile phone companies, Nokia, Motorola, Ericsson, Samsung, LG still accounted for over 83% of world’s market and Nokia alone took 49%. In contrast iPhone was merely a 0.6% volume in the global mobile pie. By 2013 Nokia’s market share had plummeted to 3%. Nokia was accused of having been too slow to recognize and respond to the threat posed by app-centric smartphones. But in fact, once the mobile software service model brought about by iPhone was visibly rolling out in 2007, it’s already too late for then brilliant hardware innovators to catch up.
What happened later was that Nokia sold the mobile phone business to Microsoft in 2013, and by end of 2016, Microsoft wrote off $8 billion on the closure of this conjured effort, the largest in Microsoft history.
The average life span of an S&P 500 company has fallen from 60 years in 1960 to less than 20 years in 2017, according to Wall Street firms. The speed of change from innovation is also accelerating. It may take just a few years for a must-have product to become a long-forgotten one, like in the case of Nokia,
We see blockchain certainly hold such potential of “creative destruction” in the digital era.
For the future, we are not short of technologies, we are often short of imaginations.
The Adoption Path of Blockchain
Have you ever watched how kids learn painting? It’s fascinating how quickly amateurs learn to put pencils to paper with lines, even though in real life there are no lines with objects. Lines intuitively just reflect how we perceive the value changes — how shapes relate and how lights contrast.
When we dwell on the innovation, we tend do the same thing, mentally dividing the space between new and old by “drawing lines”, the disruptive technologies need to be distinguished from the status quo.
But we know in any professional art crafts lines don’t exist. They are either absorbed, erased, or blended in the process of working. This process calls in artists’ tremendous amount of skills, creativity, and sometimes courage.
This is how I see eventually future blockchains may take its roles in digital age. Yes, they will stand out unmistakably as a neutralized distributed ledger system so that digital information and value can move securely with traceability, immutability, transparency, and cost efficiency and many other unique features bestowed by blockchains. But more likely blockchains will work in a blended, integrated way with other digital technologies, for example ERP system for supply chain, so that the users may interact with blockchains without even knowing they are. To be vastly beneficiary for the society blockchains need not necessarily to claim a stand-alone victory or named as a disruptive killer app.
This doesn’t mean the blockchain adoption process to be smooth and pleasant for many. But the trend line is toward progress, growth, and higher standards of living.
I see the bewildering blockchain adoption will take the shape of the hockey-stick curve, but with a long and patience-enduring blade.
There are 3 reasons for this:
1) Steep learning curve
Blockchains are not a technology. They are a collection of many innovative technologies from the last half century in mathematics, cryptographies, and engineering. It’s also the economics, an intricate interplay of technology, incentives, and the rules of the eco-system. It’s very complex.
What’s more, being open sourced, decentralized, and “permissionless”, new blockchain knowledges are also created constantly in all disciplines and peripheries. It can take a significant lead time for the knowledge to enter the “core” from such distributed crowd base.
2) Regulation clarity
Complying innovations with the complex systems of regulations, or the lack of them in some circumstances, represents an on-going risk, especially in highly regulated industries like finance or healthcare.
Take a snap shot of a use case in loan securitization in US, we have Dodd-Frank establishing a requirement for Risk Retention; or BASLE III in managing Capital and Liquidity Regulation; or SEC requiring Regulation AB II, institute loan-level disclosure requirements.
It can be daunting to navigate a roadmap for an emerging technology through such complicated system. On the one hand, distributed ledgers can crystalize the overburdened point-to-point communications among market players. On the other hand, domestic and international regulations also need to collaborate and cooperate to reshape the rules and standards to foster innovation in the regulated services. The regulatory clarities are key to the speed into future.
3) A new commercial rule-book
Blockchains are technologies with pre-coded incentive mechanisms and represent a decentralized governance model. A business use-case running on top of blockchain needs to consist of the standards and rules for every node to agree and apply, including how to share information, who verifies the data integrity, and who gets rewarded for how much worth on what can be considered “honest” behaviors. This could be a massive, complex, and sometimes messy and ugly consensus-building exercise, in a decentralized setting.
As we have seen in recent development in enterprise consortia, building a “proof of concept” can turn out to be relatively straightforward. But the “proof of concept” wouldn’t necessarily suggest what pieces of it would get buy-in from which partners or customers, and how easy or difficult to scale. It’ll take significant efforts to align counterparties’ interests, and often demand superior business and negotiation skills that can go well beyond the developers’ expertise in technical domain. It’s not a simple, quick process nor a task to take lightly. That’s partially why the majority of “proofs of concept” have struggled.
So, what does it mean for any company that is looking for an “blockchain strategy”?
1. Appreciate change management is a process, not an event. It takes time as an organization to move from the age of discovery to the age of implementation, and eventually to the age of expertise. If you only start when you have to, the chances, as an organization, you are already late for the game.
Stop waiting for an killer app of blockchain and start looking from inside now.
2. Ask “what will technology do to us?” rather “what do we want to do with technology?”
Blockchain is fundamentally a coordination mechanism. Businesses that deal with slow, costly, or unreliable transactions, in theory have good reasons to consider blockchain technology.
The decentralized, internet-native blockchain technologies may lead to the breakthroughs in organization’s operation on a basis of peer relationships rather than hierarchy. Then where we can do best is to implement the business practice on top, in the end, not necessarily trying to reinvent the wheel, but trying to re-apply a process of best practices in setting new architecture principles.
This could involve much higher level of self-management, wholeness, and evolutionary purpose. As promising or challenging this may sound, action is NOW.
As Joseph Schumpeter’s “Creative destruction” nicely illustrated:
“The process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroys the old one, incessantly creates a new one.”
Joseph Schumpeter, Capitalism, Socialism and Democracy, 1942