Blockchain Alone Won’t Fix the Internet’s Platform Problem

But the Emerging Business Model That Blockchain Enables Could

Apr 30, 2018 · 5 min read

By: Charles Kwon, May Pao, Steven Jacobs, Ivan Chong, Carol Pegnato

In the decades we have spent studying disruption, few innovations have proven as divisive and confounding to our partners as blockchain. The astronomical growth of cryptocurrency valuations during 2017 pushed a still-early innovation to the center of the global stage and forced executives and leaders to take a stand on the movement — often before spending the time to understand its implications.

The result is a group of smart, forward-thinking newcomers to blockchain who can smell the opportunity but cannot quite see it. The basic themes around decentralization are compelling and familiar, but for many, the concept of, and the valuation ascribed to, tokens and currencies simply do not fit into their mental models. For those of us who have gone through the traditional equity fundraising process, the idea that a company could raise over $50 million for a project with little more than a white paper outlining its vision feels fundamentally wrong.

We believe deeply in the vision behind blockchain — but we also believe that the success of these communities is not preordained. For blockchain and cryptocurrencies to be successful, it is critical for early adopters like our clients to explore, internalize and help shape the core value behind these systems — not just nod and move on.

The Internet needs an alternative to the platform model

We believe the fundamental promise of blockchain centers on the ability to design networks that allow communities to create and deliver value more effectively. These networks, or Decentralized Autonomous Trustless Ecosystems (DATEs), represent a new economic model in which a community of independent entities can create, deliver and consume a good or service without relying on a central entity to manage the marketplace.

Consider the DATE as the natural extension of the “Platform Revolution,” which propelled Uber, Airbnb and others to become the fastest growing companies in modern history. These platforms opened the supply-side of a given market to anyone who wanted to participate, and focused instead on building the tools to enable the transaction — not deliver the service itself. As Geoffrey Packer describes in his seminal book, the result was exponentially faster growth and the ability to deliver a substantially cheaper service.

However, these platforms still control critical aspects of the network infrastructure. Consider Uber: the ride-sharing company controls a) the database of riders and drivers, b) the method by which a user interacts with others on the network (e.g. the application and matching algorithms), c) the transaction between rider and driver, and d) any excess profits generated on the platform.

The control which platform owners’ such as Uber wield over these elements creates three primary problems for the network. First, it limits the amount of innovation that can happen on the platform to the ideas which Uber’s team can develop. Second, network participants — in Uber’s case, riders and drivers — have no “voice” in the direction of the platform, particularly around pricing, making it difficult for a partner to want to develop a meaningful business on the network. And third, the platform owner “owns” the platform so it alone shares in the benefits of ownership while others simply “rent” their space. We know that by allowing participants to share in the future value of a community they will invest substantially more in creating that value (see stock options, home ownership etc.)

Blockchain is just a means to an end

A few years ago, we began to hear a common refrain in the technology community with respect to crypto: it’s all about blockchain. That refrain has created a harmful, feature/function mindset that leads many to overstate the power of the technology itself and distract investment from the challenging work required to develop a fundamentally new business model for the web.

We believe decentralized autonomous trustless ecosystems, or DATEs, represent an important step forward in network design. A DATE uses a blockchain to put many of the critical elements of the network infrastructure, which platform owners currently control, in the hands of a community’s stakeholders.

We define DATEs as follows:

  • Decentralized: Control over the system is determined by the consent of its participants.
  • Autonomous: Transactions are self-executing based on pre-existing agreements between participants codified in programmatic contracts.
  • Trustless: Participants do not need to be “trusted” to participate in a transaction.
  • Ecosystem: Value is created and shared based on agreements made between peers — not by the discretion of a central entity.

The result is a new economic model, which we believe, will transform a number of industries over the next decade. We know that the more a network can empower participants to create value, both by expanding their rights and improving their ability to capture their fair share of the reward, the faster it will grow.

We also know that the economic models created by the current “platforms” are not sustainable. The design of these platforms necessarily creates a degree of inequality between platform owner and participant, both in terms of power and wealth, that will eventually lead users to “exit” these platforms. We hope that the DATE model will provide a viable alternative that can distribute wealth more effectively and in doing so, continue the extraordinary pace of innovation that followed the emergence of an open and free web during the dot com and the web 2.0 eras.

However, as we said earlier, this future is not preordained. In addition to key gaps in the technical and collaboration infrastructure, the blockchain community also suffers from a communications problem: we are not successfully telling the story to the broader public. As we move up the adoption curve from innovators to early adopters, we need to communicate the core value promised by DATEs differently. Broad generalizations about the power of decentralization are not sufficient: we need organizations that can translate the benefits of this new economic model into clear value for mainstream participants.

Concitor is here to help promote that vision. We are here to bring three decades of work in the trenches of disruption to bear to help the blockchain community achieve its potential.

Concitor is an executive advisory firm that helps clients hardness disruptive trends to create value. Over the past decade, our team has worked with the world’s leading technology-focused companies (e.g. Dell, Dropbox, Honeywell) to capitalize on disruption. We have offices in Chicago, IL and San Mateo, CA.

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