Episode 11: Alex, I’ll Take “Blockchain” For 500

The never-ending agony of corporate innovation theater

About ten years ago, an entrepreneur walked into the big corporate offices of a well-established company and struck a deal. The suited-up executives sitting around the table were floored by this young dynamo and the new technology laid before them.

They quickly inked a large, exclusive deal. They couldn’t risk this technology — this opportunity! — going to a competitor. But in their haste these executives failed to ask some fundamental questions, like whether the technology actually worked.

That dazzling young entrepreneur was Elizabeth Holmes. The technology she peddled was a device that promised to run comprehensive tests with just a finger prick of blood. And the big company? That was Walgreens. In a story that has now become infamous in Silicon Valley, Holmes’ technology did not actually work and the results were devastating.

But Walgreens is far from the only big incumbent company to have fallen prey to the allure of innovation. In fact we see this all the time. Incumbents in their desperate fear of going extinct throw resources behind cutting edge technology. They staff teams to work on nanotechnology, artificial intelligence, data science, internet of things — and yes — blockchain before they have a strong sense of WHY.

This is innovation theater: a performance enacted by incumbent companies to demonstrate that they are still fresh, innovative, on the cutting edge. This week we are diving into enterprises and their experimentation with blockchain (not bitcoin).

Listen to Episode 11

Show Recap

While the industry has struggled to coalesce around a single definition for that word, “blockchain”, most participants would at least say that certain components are necessary in order to refer to a database as such. It has to be a ledger, it must be append-only, there needs to be a way for participants to agree to the state of the ledger…

This hasn’t stopped enterprises in particular from taking the term and manipulating it to suit whatever their marketing need of the moment is. Remember Accenture’s editable blockchain everyone?

Permissioned blockchains: have they been more style or substance? We only need to look at the progress (and lack thereof) of the startups that have operated in the space to come to (at least a short-term) conclusion. These startups have alternately declared insolvency, pivoted to consulting strategies, and returned to their cryptocurrency / public blockchain roots.

With the announcement of JPM Coin and increasing hype around FaceChain, we are once again seeing the return of the enterprise to the blockchain world. The direction these projects go remains to be seen, but here are some ways we think enterprise blockchains maybe just might prove valuable long-term:

  1. Trojan Horse: when it comes time to integrate cryptocurrencies into the existing financial system, there will already be a team on the inside of the big incumbents with some of the infrastructure ready to go.
  2. Direct Custody and Settlement: Wall Street’s back office is a mess. And for the most part big banks don’t actually directly custody their assets. They use central securities depositories. Could a blockchain help here? Maybe.
  3. Governance: Who actually participates in proxy voting? With an increasing amount of stock ownership being managed via ETFs and index funds, corporate governance is suffering from a lack of clarity and participation. Could blockchain based tools enable better governance?
  4. Transparency: financial products like ETFs suffer from a lack of transparency. If only we had a way to create funds whose properties were disclosed (and verifiably so) without disclosing the precise assets underlying them!
  5. Privacy: most of the modern financial system, from Goldman Sachs to Alipay, has been built without the option of privacy. If enterprises using blockchains can inject some consideration of privacy back into the equation, then that’s alright in our book.

But let’s be clear. Enterprise blockchains are not going to deliver most of what they promise. This technology is not (at least not right now) about providing better liquidity, increased security, faster settlement times, or cutting back-office costs.

Cited in the Show

Link to Tweet from Spencer Bogart

Link to a Twitter thread on Enterprise Blockchains where people defend cybercoins ie tokens as enterprise blockchain applications. Pump the partnerships!