Planet of DApps: different ways to innovate on blockchain, systematized
Perhaps the time when we start dropping “You know, there is a DApp for that!” in regular conversations is still remote. But the number of projects, aiming to resolve all sorts of problems by having a decentralized architecture, is growing by day. Looking at a ton of those, with the diversity of ideas and approaches, inevitably requires identifying some patterns. Seeing these patterns is not only comforting for a restless brain that needs some structure to avoid an equivalent of a digestive disorder in your head. It also helps to understand the modularity of innovation in general, and innovation in blockchain, in particular.
Many blockchain startups solve the same problems, but they do it in dramatically different ways. Same happens in real life. For example, you are trying to get more dates. One way to address the problem is to become a more interesting person. In a startup equivalent, that would be a tech insight. Another way to get more dates is making yourself more exposed to social scenes instead of relying on your friends to set them up. That would be taking advantage of disintermediation and a marketplace insight. Or, finally, you can give your body an upgrade in a gym and become insanely hot. In that case, an immediate desire to date you would be a no-brainer. Whatever helps you seal the deal with “better user experience” is, for a lack of a better word, a usability insight.
Identifying the Tech Insight, the Market Insight, and the Usability Insight as building blocks of innovation helps a lot in understanding of blockchain projects. In fairness, the distinction between the three may be blurred and the winner is usually a combo in the right proportion, rather than betting on one of them only. (Agree that a hot body, however appealing, is not a guarantee for a commitment!)
The Tech Insight innovation in blockchain projects relates to the construct of the protocol itself. The Bitcoin blockchain in its initial form lacked scalability and flexibility. Scalability issues, even though Bitcoin was designed for transactions, put the micro-transactions and fast transaction processing out of reach. Little flexibility meant that 1) the access to the blockchain itself would be reserved to the elite few with technical capabilities; 2) the number of use cases Bitcoin could power in general would be limited.
As the result, a lot of innovations in the blockchain were aimed to overcome that scalability and flexibility issues. All of them can roughly fall within three broad groups: protocol principles, protocol interaction, and apps on top.
1.Protocol Principles: A protocol is a system of rules governing the process. In blockchain, innovating in protocol means changing the rules of how transactions get processed and how agreement between those responsible for processing transactions is achieved.
IOTA PROJECT fundamentally changed the architecture of the protocol, by making each new transaction validate the previous two and by having all transacting users to participate in consensus. The new protocol, called Tangle, opened up the possibility for micro transactions processing.
Another project, Tezos, recognized that giving too much power to the core dev team and the miners may stall the blockchain progress and even lead to a fork. Instead, TEZOS turned all token holders into decision makers to approve the protocol upgrades. Approved upgrades would be then automatically deployed on the network.
2.Protocol Interaction: Who interacts with the protocol? — It’s users and other protocols. That said, innovation in protocol interaction either changes the way users can get on the network or how other blockchains can access it.
Team Nimiq allowed anyone with a browser to become a miner on the network. No longer does one need to hit the credit card limit by buying all that mining equipment. Lowering the barriers of entry to the blockchain is a must for a broad adoption by non-technical users.
A debit card and a wallet, TenX, via its COMIT protocol, enabled different blockchains to interact without having to issue a new token. The practical application of it? You can use blockchain assets with the same convenience like local currency for buying something trivial, like coffee.
3.Apps on Top: Though initially applied to payments processing, the blockchain properties enable many other applications. Utilizing blockchain for applications other than straight payments requires some code written on top. With the emergence of Ethereum smart contracts, such apps became possible.
EOS took it steps further by embarking to build the whole “operating system” for DApps. This way, applications can be built on the EOS blockchain using features common to all distributed applications, while developing their own unique UI/UX and functions.
Other startups, like Decentraland, explore applications of tying the blockchain to other technologies. VR or AI are the easiest suspects. A successful integration of the blockchain technology into other tech sectors triggers more apps to pop up.
Now, innovations, based on the tech insights, can open up a lot of new possibilities. They, however, take a while to implement and can be costly to bring to life. Remember that “getting interesting to get more dates” thing? So easy to become stuck in the process! Innovations based on the market insights, on the other hand, explore the ways to reconfigure interaction between supply and demand.
Imagine coming to a club, looking all nice, ordering a bottle service, just to find out that the ratios are all screwed up! You already spent all that time and money for the club to benefit and for you to go home without a single new phone number! Just because the club provides a place to meet, does it mean it should always win regardless of whether its visitors benefit? Exploring this misalignment of interests in a market is an essence of the Market Insight innovation.
You can restructure the ecosystem allowing supply and demand to meet or you can create new ways to compensate the participants of the ecosystem and to incentivize them better.
1.Ecosystem Insight: Sometimes a marketplace becomes archaic, ridden with legacies, or polluted by profit seeking intermediaries. Blockchain helps a marketplace to accommodate the evolved needs of its participants and to avoid the unnecessary noise in the process of transacting.
SALT Lending embeds blockchain into the centuries old borrower-lender relationship. Crypto assets, while carrying the real value, currently do not participate in the evaluation of the borrower’s creditworthiness. Using them as collateral for loans provides additional liquidity that traditional credit marketplace could not offer.
A messaging platform, Status, bets on decentralization and disintermediation of an ecosystem. It allows users to transact with each other in a variety of ways without manipulation from the third parties.
2.Revenue Model Insight: A marketplace only exists because its participants have economic incentives to participate. If blockchain helps you to save expenses, improve visibility of the stakeholders’ ROI, or create incentives for new groups to engage, you got a revenue model insight.
Basic Attention Token, for example, makes advertisers’ spending transparent, and provides data on what a user actually pays attention to. More relevant content to a user, better revenues to a publisher, and understandable ROI to an advertiser — a triple-win situation!
Numerai, as a crowd wisdom and AI powered hedge fund, aims to achieve better investment results by incentivizing distributed data scientists to place stakes on their predictions. Their reward depends on how well their model does with the future, not the past, data. As the result, their focus shifts on performance instead of forcefully fitting a model into a historical data set.
Market Insight innovation in blockchain focuses on making interactions between the stakeholders more transparent and their interests more aligned. It is less demanding from the technological perspective (it does not involve building a whole new blockchain). However, it is tough to sustain the competitive advantage from such innovation long term unless you can generate significant network effects, fast.
The Usability Insight innovation is more of a derivative of both Tech and Market insights with a sole focus on improving, well, usability.
The power of the blockchain made many transactions, priorly impractical or only possible in theory, viable. Blockchain innovations, turning unattainable into feasible often have more of a tech flavor. Other innovations cutting steps between the start and the finish have more of the market insight behind. After all, getting back to the gym and the hot body example, no physical fitness would happen without rewiring of a mindset (tech flavor), and no change would be noticed without direct exposure to the dating candidates pool (market flavor).
1.Unattainable to Possible: Find something important but hugely impractical, make it feasible or even economical with the blockchain. Cheap and fast international payments were the first step in this direction. Handling data — a step further.
Factom, providing document management services on blockchain, shows how inherent qualities of blockchain, like immutability and censorship resistance, make it possible to securely store a massive amount of data.
Tierion, on the other hand, plans to enable attaching a virtually unlimited amount of data to a single transaction on a blockchain. The purpose of such linking is to verify the state of that data at a certain moment in time. The status quo, however, is one piece of data per transaction. That means that Tierion makes data verification at scale achievable.
2.Complex to Easy: Cut the steps out of the process and make it so easy that your grandma can do it with the blockchain. Innovating here is more complex than it seems! It requires a structure that makes a user unaware of dealing with the blockchain itself or a killer UX that anyone gets, sober or drunk.
Everex can be a good example of incorporating blockchain into international payments and remittances without burdening the participants with the volatility of cryptocurrency. They make transfers in “cryptocash” — a cryptocurrency pegged to the fiat currency it represents.
ShapeShift.io, on the other hand, provides a super intuitive and a simple way to instantly convert one type of tokens to another. Not holding customers’ deposits, they are able to significantly simplify the exchange.
With the idea of simplification, the Usability Insight is actually hard to develop. It is no different than in any other startup — we think we know how to make things easier. But we don’t always know what the market actually wants.
Now making a system out of various ways to innovate on the blockchain should not be a theoretical exercise. Just the opposite:
- For an entrepreneur with an existing project, it should be an introspective process to better understand and articulate the innovation that his or her project represents. This could help communicating it to potential users and augmenting it to build a sustainable competitive advantage.
- For an ideating entrepreneur, it is a process of structuring thoughts and developing a concrete defensible business case. This helps an entrepreneur to crystallize the differentiating value proposition to be able to dodge the “Have you hear about…(insert some scam project name here)”questions.
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