Enterprise Blockchains 3.0: Third Time’s a Charm?
With Jack Dorsey’s announcement of Twitter Bluesky, a new wave (and type) of enterprise-led blockchains is coming. But this time, they could succeed where previous attempts by corporations failed in the past.
On Wednesday Jack Dorsey — CEO of Twitter and Square — announced Twitter’s “Bluesky Initiative” to fund the independent development of a decentralized social media protocol, and Twitter plans to be one of its first clients. Almost instantly, it broke #CryptoTwitter.
For the last five years, our team at IDEO CoLab Ventures has been working with, investing in, and co-incubating early-stage entrepreneurs and startup teams to build open, decentralized networks and platforms — helping them design for and bridge to the masses. But yesterday’s announcement made me step back and wonder: are we seeing the development of a new type of enterprise blockchain movement? What could that mean for the ecosystem, and what would it look like?
On the surface level, Bluesky sounded similar to the announcements of Square Crypto (March 2019) and Libra (June 2019), but upon further reflection, I believe that Bluesky may pioneer a new wave (and type) of enterprise-led blockchains — “Sponsored Networks” — that will succeed where previous attempts from corporations failed in the past.
Enterprise Blockchains 1.0: Permissioned Databases (via Internal Incubation + Commercialization)
For more than six years, enterprises — especially corporations — have had a rocky relationship with blockchains. In fact, back in the days when there was only Bitcoin, most corporations were dismissive or didn’t care enough to take notice. But in 2015, when the term “blockchain” became a meme and made its way in to every corporate board room, suddenly every company on the planet wanted a “blockchain strategy” and portfolio of its own blockchain proof-of-concepts (PoCs).
But there was a big problem: Corporations back then wanted blockchains—but without the tokens, decentralization, and networks that empowered end users.
Unfortunately, this was largely representative of the first wave of enterprise blockchains from 2015 to 2017. They were private (or at best permissioned) databases, developed and controlled by a single corporation for the purpose of improving the company’s internal operational efficiency — like reducing redundancies or streamlining internal reconciliation processes. Yes, they were technically blockchains, but they weren’t what blockchains were invented or purposed for. And in most cases, their direct and shadow costs ended up outweighing their projected benefits.
Some corporations such as Fidelity, Nasdaq, and others saw where the world was heading and built solutions for the emerging crypto ecosystem and platforms with the aspiration to progressively decentralize them. Some of those initiatives spawned businesses that are still alive and growing today, like Fidelity Digital Assets. But most Enterprise Blockchain 1.0 experiments and PoCs died after years of work, simply because they weren’t bold enough in their ambition, thinking, or design.
During the Enterprise Blockchain 1.0 era, what most corporations misunderstood was that blockchains were not primarily for driving process efficiencies within their corporations or reinforcing existing business models. Blockchains were instead for creating new markets infrastructure and marketplaces — and unlocking fundamentally new network-based incentive and business models.
Enterprise Blockchains 2.0: Reverse Tokenization (via Internal Incubation + Spin-Out)
In 2017, just as confidence levels in Enterprise Blockchains 1.0 were starting to wane, Ethereum’s ERC-20 token standard took off and led to an explosion of new Ethereum-based, tokenized startups and Initial Coin Offerings (ICOs).
The world — including corporations — took notice, especially when ICO-based fundraising surpassed traditional VC funding into early-stage tech startups in June 2017 (although we all know how that quickly ended).
As early-stage crypto startups in 2017 were raising billions of dollars in capital and dominating news headlines, some corporations in different places around the world started to ask a new question: “How might we use blockchain to tokenize our existing business — for the purposes of expansion and growth?” While still centered around one particular company, it was a much more interesting and rich question to explore than finding internal efficiencies from the previous era.
Then, in 2017 and 2018, a number of non-crypto enterprises and corporations did exactly that by incubating and planning to spin-out new tokenized networks. Kik introduced Kin. Telegram introduced TON. LINE introduced LINK. AirAsia introduced BigCoin. Even Long Island Ice Tea pivoted to Long Blockchain Corp. (Yes, that actually happened.)
This process, where traditional corporations incubated and spun-out tokenized networks became known as “Reverse Tokenizations” or “Reverse ICOs.” Many of these spin-outs raised millions or in some cases billions of dollars from investors and the public — in large part because these companies already had millions of active users. Some were since halted by the SEC, and most have not yet launched. However, Reverse Tokenizations represent the second major wave of enterprise blockchains from 2017 to 2019, and they are still happening in various forms to this day in places all over the world like Europe and Asia where some corporations see tokenization as a strategic opportunity to potentially expand their businesses, platforms, and networks regionally and globally.
The Problem with Reverse Tokenization: Neutrality
One of biggest issues and limiters for reverse tokenizations, however, is that most of these platforms are developed by one corporation, are primarily for the same corporation, and thus they lack the neutrality they need to be as widely adopted as intended— including by developers or the corporation’s peers and direct competitors. For some companies, this may not matter (or they’re willing to make that trade-off). But if the network is designed with the intent to achieve (and/or requires the network effects from) wide-scale adoption, then it’s a lot harder to achieve that goal if the network wasn’t started, structured, designed, or built that way from the very beginning.
Interestingly, though tokenized networks address the central problem of a private enterprise blockchain’s (Enterprise Blockchains 1.0) inability to bring to market a disruptive new business model, a tokenized network may be necessary but still insufficient if the reverse tokenization process causes the tokenized network to retain its single company focus — in terms of value capture or even if purely in the eyes of potential external collaborators like developers, peers, and competitors.
Facebook’s Libra
With this framing, although Facebook’s Libra (announced June 2019) was always intended to be an independent platform from Facebook — managed by the 100 expected members of the Libra Association (currently around 21, down from the initial 28)—in the eyes of the public, lawmakers, developers, collaborators, and its competitors, it’s still largely viewed today as Facebook’s platform and therefore may be more akin to a reverse tokenization than a neutral, fully independent platform (at least for right now) — in part because of how Libra was started, structured, designed, built, and communicated to the rest of the world. Libra still has a shot despite some setbacks in recent months, but it has quite a bit of work ahead to shed — or accept — the perception of it being Facebook’s platform with a centralized agenda or bias.
Enterprise Blockchains 3.0: Sponsored Networks (via External Sponsorship + Collaborative Co-Creation)
This now bring us to yesterday’s announcement from Twitter, which I believe shows to the world a new approach to enterprise-led blockchains: Sponsored Networks, where established enterprises sponsor — yet don’t own or control — external, independent teams to develop or build on existing open source protocols and public networks for the corporation and general use.
Arguably, Microsoft’s support of Ethereum and the Decentralized Identity Foundation (for which IDEO CoLab was a founding member), Square Crypto’s support of Bitcoin, and Twitter’s Bluesky initiative are examples of what Sponsored Networks could look like, how they develop, and how they ultimately succeed.
What’s intriguing is not only who/how Sponsored Networks are funded, but just as importantly how Sponsored Networks like Bluesky are managed, supported, and conferred upon with the enterprise’s brand, reputation, relationships, distribution capabilities, resources, and clear pathways to millions of users — all while (hopefully) maintaining their independence and autonomy. Assuming that the sponsoring enterprise’s values are aligned (which is a HUGE IF and may require a rare CEO like Jack Dorsey who’s as bought into the principles and promise of decentralized technologies), Bluesky and other future Sponsored Networks could have substantial advantages over existing enterprise and startup teams going after the same market, users, and use cases.
Of course, the biggest challenge with these collaborations will be in managing the tension between integration versus independence, as well as maintaining aligned incentives so that the joint effort grows the pie for everyone (now and in the future), versus getting into the death spiral of a zero-sum game. And for a Sponsored Network to work, there likely cannot be disproportionate tokenized incentives accruing to the sponsoring organization(s). Instead, the sponsoring organizations will likely need to focus on value-added experiences, services, products, and relationships that sit higher up in the stack — so that value accrues fairly to both the clients, like Twitter, and protocol/network.
While this is going to be very complicated, the good news is that this next wave of Sponsored Networks have the opportunity to learn from and improve upon the structures and incentive models of the past. As this next wave of Sponsored Networks come online, I’d expect (and hope) that we’ll see enterprises reach out to, engage, and mix with existing open source communities and developers in more collaborative ways than ever before.
I’m interested to see how Twitter ultimately manages the Bluesky initiative, but if Square Crypto (under Steve Lee’s leadership) is any indication, I’m optimistic that Bluesky could have a meaningful impact and inspire a new wave of Sponsored Networks over the coming months and years ahead across a wide array areas like compute, storage, gaming, digital media, credit, payments, exchange, communications, collaboration, governance, and so on.
It then poses an interesting question: could Sponsored Networks be one of the next major drivers of mainstream crypto/blockchain development and adoption globally?
I don’t think any of us know the answer to that question, but if you’re similarly curious and want to try something, let’s go find out.
Maybe the third time’s a charm.
If you’re an entrepreneur, executive, or part of a enterprise that is thinking about or working on the future of the distributed web (crypto, blockchains) please reach out to the IDEO CoLab Ventures team at startupstudio@ideo.com. We love rolling our sleeves up and helping.
From 2014 to 2017, I was the crypto/blockchain lead at Citigroup, before leaving in 2017 to help IDEO start IDEO CoLab Ventures and focus full-time on investing in and helping incubate early-stage crypto startups. You can always find me via Twitter at @ianjohnlee.
