Similarities between the Internet and Blockchain

Today’s top Internet companies are doing two things:

• Digitalization: Companies from this category are digital versions of offline analogies: Examples include online shops (e.g. Amazon), video streaming platforms (e.g. Netflix), and travel booking platforms (e.g. Booking.com). Online shops are a digital version of retail stores, video streaming platforms are digital counterparts to video shops, and online booking platforms are Internet-based travel agencies.
• Supporting: Companies from this category are tools (in a very broad sense) for the Internet ecosystem. Examples include search engines (e.g. Google), cloud hosting providers (e.g. AWS), and social listening apps (e.g. Moz). Search engines are tools to search for online content, cloud hosting providers are tools that support the hosting of online content, and social listening apps are tools for analyzing online content.

Today’s top public (Internet and non-Internet) companies by market cap are all using the Internet in two ways

• Process innovation: Companies from this category use the Internet to improve their processes. Examples include Apple, JPMorgan Chase, and Berkshire Hathaway. Apple uses the Internet to speed up their product discovery (i.e. online shops), JPMorgan Chase to speed up their trading (e.g. AI-based trading tools) and Berkshire Hathaway to speed up their administration (e.g. bookkeeping). Moreover, all these companies use the Internet in one of simplest way; e-mails instead of letters or faxes.
• Business foundation: Companies from that category are building their end-user business using the Internet. Examples are Alphabet, Amazon, and Facebook. All three examples serve their customers via the Internet, none of their business can be used without an Internet connection.

These categorizations show a few things

• The Internet can be a tool but also a foundation: For Alphabet, Amazon, and Facebook the Internet is their foundation (see Business foundation). For Apple, JPMorgan Chase, and Berkshire Hathaway the Internet is a tool, a means to an end. The lines are blurring but an iPhone can be used without Internet, Facebook, however, not.
• The Internet has either digitalized existing offline applications or created new ones that are specifically needed for the Internet: Amazon, Netflix, and Booking are those digitalizers (see „Digitalization“ above). Companies from the category „Supporting“ were newly created for the Internet. AWS, Moz, or Google wouldn’t have been created if the Internet hadn’t been invented.

Collaborative approach to innovations

However, labeling above-mentioned companies „Internet“ companies is misleading, because it implies that the innovation underlying them is the Internet. The Internet does play a role, but only a collaborative one. Those companies are namely enabled by a collaboration of several innovations.

Innovations in the fields of Artificial Intelligence (e.g. Amazon’s recommendation engine), data compression (e.g. Netflix’s streaming service) or logistics (e.g. Amazon’s warehouses).

Second-order innovations

Moreover, we can observe companies with second-order innovations that are not obviously Internet companies but still require the Internet. The most prominent example are smartphone apps such as Tinder or Uber. For most of them, although they use the Internet, the Internet has become a given background ingredient. This stands in sharp contrast to traditional Internet companies such as the mentioned Amazon, Google, or Booking.

Now, if the blockchain is similar to the Internet, the above-mentioned categorizations and the here described collaborative innovation provides an interesting starting point when thinking about the future of Blockchain.

If the Internet (or software) is eating the world, Blockchain seems to be eating software/Internet

I have touched upon this paradigm in “Decentralized applications — “experimenting with blockchain” is more than tech“ where I argued that “many blockchain startups, offer decentralized solutions of existing products. This can, for instance, be observed in social networks, video hosting, and music streaming, and marketplaces and shopping apps.“

If the Internet needs supporting tools, Blockchain does so as well

Examples for such supporting tools are privacy coins (see Market map privacy coins, protocols, and platforms: cryptos bringing privacy to blockchain and Privacy coins vs. coins with a privacy feature: analysing privacy coins), decentralized exchanges, and Dapp browsers. Privacy coins solve Blockchain’s anonymity problem, decentralized exchanges enable trading of cryptocurrencies, dapp browsers are used to browse dapps. If the Blockchain hasn’t been invented, none of these tools would be necessary.

If the Internet poses process innovation as well as business foundation, blockchain seems too

For companies such as Golem (decentralized cloud computing) or Augur (prediction market) blockchain is their business foundation. If there were no blockchain they couldn’t implement their business the way they do (e.g. token-based incentivization). In contrast, a range of companies might use a blockchain to improve existing processes. Examples for such process are supply chain management or invoicing. Populous, a blockchain-based invoicing platform is a great example. For Populous itself Blockchain is the business foundation, they cannot build their business in the way they are doing without a blockchain. For Populous’ customers, however, Populous is just one of many technologies they could use to improve their invoicing.

If the Internet-enabled, second-order innovations blockchain will too

As mentioned-above, the Internet has lead to second-order innovations such as Uber or Tinder. Furthermore, other innovations such as the car have also lead to second-order innovations (e.g. motels). Similarly, blockchain will bring innovations that go far beyond what is happening right now.

Originally published at researchly.leobosankic.com on April 23, 2018.