Blockchain Adoption and Digital Privacy

When I taught strategy to MBA students, an important concept for students to understand was the economic value to the consumer. How much benefit does your user get and at what cost? Why are they going to choose your product or service instead of your competitor’s? This is the foundation on which any competitive advantage sits. If blockchain technology is ever going to achieve mass adoption, these questions must be asked.

As I type this, Mark Zuckerberg, CEO of Facebook, is testifying to congress about a breach of privacy on his platform perpetrated by Cambridge Analytica.

Privacy is one of the core features that blockchain technology can provide.

Public concerns relating to it, as seen in the case of Facebook, show that there seems to be a demand for such a feature.

However, while many development teams using blockchain technology have been working to solve the privacy problem, this benefit to consumers alone may not be enough to achieve adoption.

A new paper by economists Susan Athey, Christian Catalini, and Catherine Tucker, titled “The Digital Privacy Paradox”, suggests there are a number of perceived costs that prevent consumers from choosing services with privacy features over other options.

During their 2014 Bitcoin experiment at MIT, in which 4,494 undergraduate students were given $100 worth of Bitcoin each, the research team collected insightful data regarding both privacy attitudes and privacy choices in an attempt to identify user preferences. Analyzing these results, their new paper reports fascinating findings, especially given the background of their sample group: more technologically savvy and more likely to be early adopters than the average consumer.

The preferences and concerns with respect to privacy and trust held by blockchain pioneers are well known. As such, Athey, Catalini, and Tucker were specific when surveying participants regarding their trust in institutions, inquiring about three different categories of entities. Of the entire MIT undergraduate student body, 53% indicated they trust the government, 43% indicated they trust retailers, and 26% indicated they trust startups, suggesting an uphill battle for those blockchain startups hoping to unseat incumbent institutions such as banks.

The results of this study provided an additional surprise. The study design gave participants several wallet options for storing their new coin ranging from a self-managed wallet to a web wallet service, and also a hybrid option. Despite the fact that this choice reduced privacy, potentially giving both firms and government access to their data, an overwhelming 71% of participants chose the bank-like web wallet option as their mode of digital storage.

“Whenever privacy requires additional effort or comes at the cost of a less smooth user experience, consumers are quick to abandon technology that would offer them greater protection.”

Additionally, for this part of the study, the researchers chose to randomize the order in which wallet options were listed for participants and chose to randomize the level of information available regarding each option in order to better understand how much effort or thought went into the choice. They found that participants had a propensity to choose the option that was listed first, indicating that they treat exerting effort to learn about options as a costs, and that the effect persisted even when participants were provided with basic privacy information about each option.

While additional transparency can dilute a small amount of the effect of navigation costs, it does not in any way eradicate them.”

These findings together demonstrate that even among a well-educated and technologically skilled population, a majority of consumers have an overriding preference for convenience and are unlikely to go out of their way to seek additional information in choosing an option that provides a benefit like privacy.

The results of this research illustrate that the general population has different preferences than those held by the pioneers of blockchain technology.

If today’s developers aim to achieve mass adoption, they must begin to think about the economic value to the consumer in order to produce a product that will be accepted and implemented into the everyday lives of the general public.

This study also shows that a technology providing benefits from a privacy or censorship standpoint — two of the most often cited benefits of blockchain — will have difficulty gaining mass adoption if there is any effort costs to implementation and/or use.

Even those consumers with the ability to read code will be unlikely to directly check whether an application or smart contract is trustworthy, and therefore may choose a services that require less work to trust. As per the findings in this study, consumers will forgo privacy and control of their data or assets if relinquishing those things means they can spend less effort on maintenance.

For those developing protocols and apps, it is imperative to take these user preferences into consideration, particularly if their desired user base is currently using a product or service that works relatively well and is easy to use.

While many technologists in the field are working hard on developing the technical solutions that will allow blockchains to scale in a way that will support mass adoption, their focus needs to go beyond that of maximizing privacy, security, and transaction throughput.

The first group to develop ‘killer apps’ will be those who carefully consider user preferences and habits in order to create technologies positioned to cater directly to them.

After all, it’s not about creating the best functioning product, it’s about creating the best functioning product that can and will be used.