Why Blockchain Levels The Playing Field Between Startups And Big Companies
Big companies have started taking blockchain seriously.
JP Morgan Chase, IBM, Microsoft, Amazon, Accenture, Deloitte, and Facebook — among others — are getting in on the action as they begin to realize blockchain’s potential. These massive billion- and trillion-dollar companies may bring about more innovative ideas and use cases for blockchain.
Then again, they may not.
Since time immemorial, large companies have been known for pushing out the small one by trying to create barriers to entry for entrepreneurs and smaller competitors. In some extreme cases, a large company becomes a monopoly, or at least an oligopoly, which is great for their business.
As someone who has worked for both tech giants and startups, I’m wary about top-tier businesses jumping on the blockchain train.
Will they evolve the technology to fit their goals and not give smaller companies the opportunity to compete? I don’t think so because blockchain technology is fundamentally different. It works by building consensus among multiple parties and hence creates a level playing field.
Here’s why blockchain-based applications, when used according to the technology’s original philosophy of decentralization, can help companies stay competitive.
Blockchain avoids the formation of single market power
Right now, a handful of companies reign over the rest in certain markets.
If I wanted to start a new social network, for example, it would be very difficult to do so without some sort of proprietary technology that entices people to leave Facebook, Instagram, or LinkedIn. This market dominance holds true in a lot of industries — from banking to software to cable companies. Comcast is a classic example of what happens when a company wins an industry and doesn’t feel the need to improve service.
But companies creating blockchain-based applications can prevent this market takeover if they rely on two principles:
- Don’t create a one-company solution.
- Don’t build a blockchain as a service solution, controlled by one corporate entity.
If those two criteria are met, then a network can be established that incentives members with a native cryptocurrency, or governs itself with rules and regulations set by the group that forms it.
And as the group grows, the benefits accrue to everyone.
A successful blockchain-based application benefits the entire network.
Once one business begins to gain a large share of users in a market, it creates a network effect — a feedback loop where the product or service becomes more valuable, which makes more people want to join, and in turn, adds value to the network.
In a blockchain-based ecosystem, companies are working within the same network so an influx of users benefits all participants.
The network effect principle works the same way: the more people using it, the better or more valuable the product or service is — except it isn’t just one company that enjoys the benefits.
It’s true that one participant within a blockchain ecosystem may have a greater percentage of ownership of the currency that’s used within it, that’s also how stock works. All shareholders benefit, but some do so to a greater degree. Yet, it’s still in the interest of this majority owner to make the entire network (and hence all participants) successful.
And because the network is made up of distinct entities working together, the group will ensure that no one entity becomes too powerful.
Decision-making is reached via consensus.
While all participants in a blockchain ecosystem are independent, decisions have to be taken together.
It’s important to note that in social structures, decisions based on consensus haven’t always worked. It’s typically a slower method, and sometimes you simply need a fast decision.
For example, in the Executive branch of the U.S. government, the President has the power to sign executive orders and direct the administration through those decisions. In case of a critical situation such as a national security event, this is the fastest way to make a decision. This is a much quicker process than when Congress has to draft a bill, have hearings, and hold a vote in each house — with no guarantees that a bill will pass.
So, it’s true that a one-party solution will always be faster than a blockchain ecosystem. In some industries speed may be the key, so a consensus-based system may not work.
But when it comes to keeping the playing field level, consensus-based decision-making is the best option.
The market decides which company or ecosystem is successful.
One side effect of the consensus model is that sometimes people simply can’t come to an agreement.
In that case, the community splits, which is also known as a fork in the blockchain world. You may be familiar with the splits that have occurred with various cryptocurrencies like Bitcoin and Ethereum. Bitcoin Cash and Ethereum Classic are two offshoots of Bitcoin and Ethereum, respectively.
This fork is what gives a legitimate option to participants who don’t agree with a decision.
When disagreements on how to proceed crop up, and can’t be reconciled, some participants can choose to split off and modify the blockchain code — that’s a fork.
Once the community has split, then the market will decide which of them is successful.
While blockchain does have huge potential, it’s essential to think past the hype and high expectations set forth by all the marketing that’s out there.
It’s still important to be realistic.
To even get to the point where a network is producing value for all of its members, you have to have a minimum viable ecosystem — meaning it reaches the number of participants, with different roles, that’s necessary for the ecosystem to gain critical mass and become useful for everyone.
When one company is using the application, it’s essentially useless. Two participants may give it a small amount of value. But when you hit 100 or 1,000 companies, the value provided by the network exponentially increases.
There is no magic number of participants that guarantees success because it’s different for every industry.
You can think of it in terms of Uber or Lyft. If there are only ten drivers in a city of 3,000,000 people, the apps are useless. Once they have a sufficient number of both drivers and riders, the apps become useful. And as more drivers join, the wait time for rides decreases — and the value increases.
Blockchain-based applications may not be right for every company in every circumstance, but if used correctly, they can be a valuable tool for leveling the playing field and creating mutually beneficial ecosystems for businesses to thrive in.
Thanks for reading!
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