How Does Blockchain Draw In The Early Majority?

Part II: Learning from the Internet’s early phases and looking to future developments in blockchain Standards, Applications, and Governance

Six months ago I published “Mass Blockchain Adoption: Are We Even Close” as Part I of a series on adoption, which explored where blockchain is currently situated on the S-Curve:

Blockchain technology on Rogers Everett’s Diffusion of Innovation Depiction

Part II is a continuation which explores how:

  • The internet of the 90’s and 2000’s left us with an incredible blueprint of milestones and elements that contributed to the rate of adoption
  • Having our community understand it can provide a common language when engaging internet savvy incumbent stakeholders
  • The comparison provides a framework, or simply, general guide to what’s missing and what’s to come for this incredible technology

I tend to use strategic frameworks, yet Strategic Analysis is not about “perfectly” predicting the future. Rather, the objective is to analyze the past (that which is known and can’t change) with rigor; and explore the possibilities of the future (that which can change and is unknown) with creativity.


Lessons from the Past: A (very) Brief Timeline of The Internet

The Late 60’s to Late 80's

The initial years of the Internet provide a vision of well-intentioned academics and scientists looking to collaborate, to have their systems talk to each other and surpass artificial closed standards. Few if no references can be found about an economic value proposition around these initiatives. Rather, the motivation seems to have been to reduce friction.

We heard similar rhetoric in the early days of Bitcoin and Ethereum. As Ryan Selkis puts it, the small but motivated developer community invested in a vision: building a decentralized world computer. The projects attracted a grassroots community with a strong focus on ethos, which is now attached to its growth by a sense of duty; a strong reminder of the early internet days.

The Hype Phase of the Late 90's

First movers during the hype phase of the late 90's, entered the internet space fueled by millionaire IPOs. There were 457 IPOs in 1999. Many were artificially sustained by capital chasing promises of large network effects rather than profits. Inktomi reached a $25 billion valuation and was bought by Yahoo for $240 million. Pets.com or Webvan both were short-lived stars.

In parallel, the 1997 publishing of the Innovators Dilemma which became an instant best seller business book and acclaimed framework, pointed to the perils faced by incumbents vis-à-vis disruptive technology. They could do everything right and still lose market leadership. The first movers were creating new concepts for niche markets, although no ROI analysis would support incumbents addressing such clients. But, by the time these new concepts attract the incumbent’s clients, the S-curve is too steep for the now “legacy” businesses.

Such disruption propelled incumbents to get into the internet frenzy. Excite.com was bought for $6.7 billion dollars in 1999 by @Home Networks, a subsidiary of cable giants TCI, Comcast, and Cox Communications. In 2001, @Home filed for bankruptcy.

Today, it is not surprising that we find thousands of entrepreneurs feeding off the promise of tokens and blockchain technology, and we should only expect that to increase during the hype phase, similar to what the world experienced 20 years ago. ICO funding raised over $5 billion in 2017 and has already surpassed that in 2018.

Even some of the most established incumbents, who rely on the very same infrastructure blockchain promises to disrupt, have jumped on the bandwagon, fueled by arguments raised in the Innovators Dilemma. Companies like Oracle, IBM, Microsoft, and J.P. Morgan are racing to provide enterprise-grade, permissioned blockchain solutions based on open-source platforms like the Linux Foundation’s Hyperledger technology or J.P. Morgan’s Quorum, whilst the 200-member strong Enterprise Ethereum Alliance Initiative is helping companies improve and secure business applications.

This parallel places blockchain technology in its initial hype phase, and on the verge of drawing in an early majority of adopters (read Part I here)

The Burst and Reluctance of the Early 2000's

With wisdom afforded by hindsight, scholars, experts and academia called for “Back to Fundamentals” and “Business as Usual” in the early 2000's. A famous article by HBS quotes Michael Porter in 2001 using his Five Forces Framework to conclude that the first mover advantage is a myth. He states that contrary to recent thought the Internet is not a disruptive technology and debunks the virtual company and the power of networks.

Porter argues that, contrary to recent thought, the Internet is not disruptive to most existing industries and established companies… He debunks such Internet myths as first-mover advantage, the power of virtual companies, and the multiplying rewards of network effects — HBR Strategy and the Internet Abstract

Similar to then, we should not underestimate the ripple effect of a drastic correction in the crypto market, nor the negative influence it can have on attitudes towards this foundational and disruptive technology. This sort of backlash, sparked by long-term negative yields and pessimistic market sentiments could see managers choose to move along their existing S-curve rather than fundamentally change the way they operate, as described by Foster’s view of technology competition.

Finally, Moving on through the Mid-2000's

Fortunately, not everyone discounted the virtues of the Internet. Definitely with a rigorous understanding of the recent past, yet creatively honing on the possibilities of the new technology; Internet-based models such as Facebook or Amazon have endured and thrived. They (initially) solved identity and trust issues perhaps not well addressed by the Internet. Furthermore, the Internet is often deemed a foundational technology, a degree stronger than a mere disruption.

In 2018, developer recruitment is growing by double digits in non-tech companies, and executives are still tackling the pressures of “Digital Transformation”; perhaps having lost 20 years of slower adoption due to the shocks of the correction. Will we be experiencing the same pressures in blockchain adoption 20 years down the road?

Looking to the Future

“The point of greatest peril in the development of a high-tech market lies in making the transition from an early market dominated by a few visionary customers to a mainstream market dominated by a large block of pragmatic customers” — Geoffrey Moore, Crossing the Chasm

Irving Wladawsky-Berger explores three main reasons that helped the passive, late majority adopt the internet as the new technological norm: Standards, Applications and Governance. ARPANET evolved from its creation in the 60’s and 70’s by adopting TCP/IP protocols in the early 80’s. Early adopters included universities and research communities as well as commercial early adopters by the late 80’s. By the mid-90’s, the Internet was embraced by a large number of mainstream users, effectively having “crossed its chasm” into the mainstream market with help from the following:

Standards

The Internet: Early adopters “embraced TCP/IP as their networking standard, and the advent of routing technologies enabled these to coalesce into a single network of networks: the Internet”. Email protocols like POP or IMAP were standardized by the mid-80’s while the web’s open standards (HTML/HTTP/URLs ) allowed users to easily communicate with each other and allowed any PC with a connection to access information on any web server worldwide.

“As with all disruptive technologies, competing interpretations of Satoshi’s vision have emerged… there is no shared taxonomy or categorization of the space” — Don & Alex Tapscott, Realizing the Potential of Blockchain

Blockchain: While most blockchain platforms are generally based on Satoshi’s original design, they differ depending on the applications they are designed to support. Cryptocurrency oriented platforms are based on public, permissionless blockchains while general-purpose platforms aiming to support business applications are based on permissioned blockchains (e.g. Hyperledger Fabric). As Wladawsky-Berger argues, there seems to be an urgent need for blockchain standards akin to the Internet’s TCP/IP layer before an early majority embraces the technology.

The Missing Links in the Chains — States of Alderney

TL;DR: A great study by the States of Alderney, PwC and, the Cardano Foundation explores the risks associated with blockchain technology and examines how blockchain technology could benefit from the development of standards to mitigate that risk.

The study concludes that risk can be mitigated through Legal Frameworks, Standards, and Professional Qualifications.

Types of Standards:

  • Voluntary Standards Market
  • Technical Standards
  • Thematic Standards
  • Sector-Specific Standards

The study also gives recommendations on processes to develop these standards and potential frameworks. It concludes that existing regulatory frameworks, at the moment, might be sufficient to oversee blockchain activities and mitigate risk, and that technical standards or sets of professional qualifications are not necessary at this point in time (2016). It argues that sector-specific standards would most benefit developers, users, and regulators and that these standards would be particularly beneficial in the areas of data and commercial governance and liability. One could assume most of these conclusions will have changed given the developments over the past two years, but the study provides a solid framework to begin thinking about a path going forward.

Some projects working on industry standards:

Applications

The Internet: Email is best known as the killer app which propelled users to adopt the internet. It is simple to understand, intuitive in replacing paper-based communications and useful due to its low cost and speed. Similarly, the World Wide Web and browsers allowed for access, and digestible information consumption, presenting an infinite library accessible with just a click.

Blockchain: As of this month, a simple search of academic articles and publications point to three areas of applications: cryptocurrencies, identity solutions, and friction reducing cryptoassets. Cryptocurrencies and cryptoassets for better or for worse have attracted the attention of the masses; whereby friction reducing applications such as Fintech and Supply chain success stories of companies like Walmart, Maersk and IBM are garnering the attention of the business community. Nevertheless, most of these applications are purely theoretical, (yes, even enterprise focused, permissioned applications) and have not been deployed at any scale in any market or environment. While projects developing applications claim assured mass adoption, we have yet to see the killer application that could spark real and organic utility (It’s best I leave Bitcoin for another day).

Governance

The Internet: During the mid-90’s, internet governance was viewed as “a limited set of policy issues associated with the global synchronization and management of domain names and IP addresses”. This has obviously evolved, and a more accurate definition today would be

“The development and application by governments, the private sector and civil society, in their respective roles, of shared principles, norms, rules, decision-making procedures, and programs that shape the evolution and use of the internet.” — UN-sponsored World Summit on the Information Society

The role of national governments in internet governance, for example, is still muddy and ever-changing. However, and at the very least, open and collaborative decision making bodies such as IETF, ICANN and W3C have been key to promote the standards mentioned earlier. Jonathan Masters writes a great baseline article on the topic:

Blockchain: Governance takes on a whole new meaning when discussing blockchain governance design. With no central authorities (debatable for many projects) to draft and enforce rules and regulations within the network, alignment of incentives and coordination mechanisms become the two critical components of governance.

Fred Ehrsam summarizes the critical components, current approaches, and potential future approaches of blockchain governance design better than I could have:

Perhaps, Governance is the front where this technology is least advanced. What is clear is that blockchain governance is at an innovative but nascent stage, and we have yet to see how sustainable and scalable many of these experiments are once put in practice. If you want to dive in deeper, I recommend these articles as a follow up to Fred’s post:


In Summary,

Standards, applications, and governance are critical elements impacting the rate of blockchain adoption. Granted, there may be other elements which lead me to caution against solely relying on the Internet’s development. There are extreme differences between complex decentralized networks secured by cryptoeconomics and the centralized internet startups of the dotcom era.

The internet of the 90’s and 2000’s left us with an incredible blueprint of milestones and elements that contributed to the rate of adoption. Having the crypto community understand it can provide a common language when engaging incumbent stakeholders. Furthermore, the comparison provides a framework, or simply, a general guide to what’s missing and what’s to come for this incredible technology.

I found this 1999 CBS News clip surprisingly relevant to the crypto space today

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