What exactly is a blockchain startup and should you start one?
Blockchain startups are just now starting to land funding and pop up in the tech press, but they’re still seemingly light-years away from hitting the mainstream. The hype around blockchain is at a fever pitch, so is this the time to start seriously thinking about a blockchain venture?
Well, it depends on the venture.
Blockchain is not a business model. It’s just a process for collecting and storing data that fits a certain and somewhat limited set of use cases. Blockchain is not a panacea. It won’t find rides for you, it won’t share your videos, it won’t walk your dog.
Ask 10 different people what a blockchain startup is and you’ll get 10 different answers. So let’s look at the spectrum of what we call blockchain companies, and decide if they’re worth starting.
A digital currency
If you’re thinking about creating a digital currency, you’re going to be walking a fine line between uphill battle and slippery slope.
Technically, creating digital currency is indeed a blockchain venture, because digital currency is an application of blockchain technology. In fact, there are those who will tell you that there is no discernible difference between blockchain and digital currency.
They’re wrong. Mostly.
But I can see how the lines get blurred. You might be creating your currency on existing blockchain tech, you might even be designing your own unique blockchain, but ultimately, the value of your product is going to be determined by the value of your coin or token, not by the value of your blockchain tech.
Now, creating your own coin is easy. I’ve done it. Even launching your own coin as a digital currency has low barriers of entry, as evidenced by the sheer number of alt coins out there and the plastic-wrap-thin documentation and technical foundation of some of them. So the competition is crazy.
But the battle for legitimacy will be hard-fought. Regulation is coming to coin, and its impact is a complete unknown. The SEC has issued subpoenas to “dozens” and reportedly up to 80 ICOs in the past month. They’ve also stated that digital currencies are subject to SEC regulations. This means that most coin operations will have to lawyer up.
An existing business + blockchain
Let’s first dismiss the recent phenomenon of companies like Long Island Iced Tea and Kodak tacking blockchain onto their business model in an effort to pump a flagging stock price. Don’t do this, for the obvious reasons.
While adding blockchain to an existing business model might be a good idea, you can’t just throw blockchain at the wall and see what sticks. You’ll have to revamp your whole business process and reeducate everyone, from your investors to your employees to your customers. So you need to be right the first time.
We have two incredibly pertinent lessons in the recent past that highlight just how difficult this kind of transition can be. The first example is the mid-2000s when the entire business world shifted from client-server to web-based application architecture. Behemoths like Oracle and SAP started losing their enterprise dominance to companies like Salesforce. Many of the rest innovated too little or too late, and pivoted their way into obscurity.
That lesson is hard to learn, apparently, because the same thing started happening all over again in the early 2010s, this time with mobile-first development and Software as a Service (SaaS).
Step 1: Blockchain. Step 2: ? Step 3: Profit!
I’ve read way too many articles on tech websites with titles that are all just a variation of: “Startup X is using blockchain to change the way we think of Y” — where Y = education, non-profit, gaming, voting, food sourcing, health care, home buying, grocery shopping, legislation, travel, social networks, entertainment, and on and on.
I won’t be so bold as to tell you to that an entrepreneur must always start with a painful problem and then find an innovative solution. That’s no fun. In fact, I’m a pretty big believer in innovation being a solution-first game, as long as you go back and find a painful problem afterwards.
Here’s how to do that.
First, don’t use blockchain to solve a problem that doesn’t exist. Make sure there are enough people out there clamoring for your solution, that they’ll pay more than it costs you to solve it, and that they’ll hopefully even seek it out.
Then, make sure the scope of the problem is narrow enough to keep you focused. Example: Education is a huge problem in desperate need of a many fixes, but blockchain isn’t going to fix all of education’s problems, or even some of education’s problems. But it may fix one. Focus on that one problem, otherwise you’ll be spinning your wheels trying to be all things to just a few people, and you’ll get a lot of false positives.
Finally, make sure blockchain is the right solution. Having done artificial intelligence for the last seven-plus years, I’ve seen too many companies throw AI at any problem, and they usually wind up spending a lot of time and money and ultimately frustrating their customers. Their mistake wasn’t that their machine learning was bad, but that they used machine learning for a use case for which it was ill-fitted.
So where should you start?
Simple. Start at the beginning. In as few words as possible: Blockchain is the storage of data in a block, which is then chained to the next block. It’s a snake of data. It’s everything relational databases were before they were useful. So this isn’t so much a technical breakthrough.
There is a technical breakthrough in the part where machines can spin through cryptography at a scale that makes the chain possible. I’ve been through a breakthrough like this using AI to create automated content at scale. We couldn’t do automated content at scale until we could do personalization at scale, and that didn’t happen until the machines could write and deliver 2,000 articles per second. But that was just the gate that allowed us to create our magic. It wasn’t the actual magic.
The magic in a blockchain startup is going to be applying the transparency, security, and efficiency of the blockchain model. There are elements of automation, verification, and speed in blockchain that are relatively new breakthroughs, and these make digital currency possible. But that’s just the beginning.
Probably the safest way to start a blockchain venture is to become a blockchain expert. The demand for this is off the charts, the learning curve is not dramatic, the community is more than helpful, and if you can figure out AWS or something like it for processing power, you can do this stuff at a professional level.
That said, if you’re not actively tinkering, actually creating and experimenting with blockchain across a vast set of use cases, using private, federated, and public blockchains, you’re no good to anyone.
There are all sorts of blockchain and crypto experts and geniuses and soothsayers out there. I don’t even call myself anything more than an enthusiast at this point. But the cool thing is, I don’t think there are a whole lot of experts out there who know more than me. This is another lesson I learned from my AI background. Using is a lot more important than thought leadership.
Blockchain for transactions
The lure of digital currency is the ability to select an entity and enter a value, then that value moves safely, immediately, and without friction or degradation. Yes, currency is the most portable and verifiable stand-in for something of value. But just because the data doesn’t represent some fiat currency in some central bank, it doesn’t mean that the data doesn’t have value.
Think of all the ways we transact that don’t involve money but add value. Confirmation and verification is one way. Voting and poll response is another. Think validation, execution, connection, scoring, all these high-level concepts that are more data ledger than data warehouse. Then fold in one or more existing technical trends like AI, mobile, on-demand, or cloud, and you’ve got a disruptive force for types of transactions we aren’t able to transact transparently, securely, and efficiently. Yet.
Blockchain for data
As I said before, blockchain is kind of a weak data solution, but in a world where data solutions don’t need to be robust, the benefits of blockchain— that transparency, security, and efficiency — make it superior in certain cases.
This is why blockchain is in a sort of BFF relationship with digital currency. It’s simply the best application of the technology. For now. But remember, AOL and static web pages were the best application of the Internet at some point.
With hindsight, I can look at trends that tell me that the client is getting thinner, the server is getting smaller, and the data is moving faster. In tech-speak, that means software development is shifting to serverless and data storage is shifting to SQL-less. In this evolutionary cycle, blockchain makes total sense.
So we’re starting to untie blockchain from digital currency. Transactions aren’t the only small, portable, finite data transfers that blockchain can be good at.
That’s where I get most excited about blockchain. A nerdy kind of excited. And that’s probably where new markets will be made and old markets will be disrupted.