Blockchain: Beyond Crypto

A Review of The Real Business of Blockchain

Blockchain has been the hot topic in the tech industry for the past few years. It is touted by many to be the new, revolutionary technology to change society. However, to many people, myself included, the benefits of blockchain may not be apparent: How does blockchain improve data storage? What does it mean for data to be recorded and distributed, but not edited? Are there any real world utilities besides creating speculative assets such as cryptocurrencies and NFTs? In The Real Business of Blockchain: How Leaders Can Create Value in a New Digital Age, the authors provide a comprehensive overview of how blockchain can be utilized in various business industries by giving various examples to highlight the versatile applications of blockchain. David Furlonger and Christophe Uzureau claim that fully mature blockchain solutions will monetize illiquid assets, redistribute existing data and value flow, and reengineer business relationships. Although Furlonger and Uzureau give plausible explanations for the first two uses of blockchain, they seem to draw unrealistic conclusions for the last one: the hierarchical structure of corporations will not be fully democratized by the incorporation of blockchain.

Before delving into the arguments presented in the book, I wish to establish my motivations for reviewing this particular book. New technology is often exciting but can be difficult to understand due to the plethora of buzzwords and acronyms such as Bitcoin, cryptocurrency, AI, IoT, DeFi, DAO, etc. These examples of technological jargon can deter many people from becoming familiar with new tools and experiences. In “The Truth About Blockchain,” Harvard Business School Professor Karim R. Lakhani explains blockchain as simply as possible. According to him, blockchain is a fundamental technology that allows us to store contracts and transactions in secure databases. In turn, this allows us to bypass intermediaries such as lawyers, brokers and realtors. While this use of blockchain seems plausible, I was hoping to find a resource that would give detailed examples of how blockchain could be applied in real-life scenarios and ultimately convince me that companies using the technology are truly worth an investment.

From the very beginning of the book, Furlonger and Uzureau succeed in advocating for blockchain’s usefulness to businesses, particularly as a means to reduce the involvement of third parties in transactions. This streamlining is apparent even in their definition of blockchain: “It means you can theoretically do business with an unknown partner located anywhere on the planet and trade any asset at any transaction size and not need a lawyer, a bank, an insurance company, or any other intermediary making sure both of you follow through on what you’ve promised to do”(11). In essence, blockchain makes digital transactions secure and removes the need for a third-party to facilitate said transactions, which is in line with Lakhani’s description of blockchain. This reduces any commission or fees associated with processing a payment that would otherwise go to the pockets of the intermediary. Furlonger and Uzureau state that we need blockchain to cut out this “middleman”. From a business perspective, this claim is undeniable. In a capitalist society, businesses exist for the sole purpose of maximizing profits and intermediaries are simply liabilities. Imagine a distributor that marks up the price of a product made by a manufacturer and sells the same product to the consumer at a premium. Now imagine if manufacturers could directly sell their original products to the consumers. Manufacturers would have considerably higher profit margins which could be reinvested back into their business or taken home as cash. Of course, there are circumstances where the use of intermediaries is justified. Certain intermediaries may have specific information or connections that would not otherwise be available for people looking to complete transactions. However, Blockchain aims to achieve a goal in which financial institutions will have less involvement in the transactions that businesses will make, empowering these businesses while accelerating their growth.

While the fundamental aspect of blockchain is a universal, secure and direct method of transaction, downstream applications of blockchain go beyond simple transactions. Furlonger and Uzureau briefly mention five examples of how organizations are planning to use blockchain. Most notable examples include Taipei Medical University Hospital’s efforts to create a blockchain solution that will enable cross-organizational access to patient records and Volkswagen and Renault’s attempts to create an “immutable passport” that contains vehicle history to prevent odometer tampering and fraud. These ideas show a glimpse into the potential of blockchain and how it can serve to increase transparency within hospital systems, automobile industries, stock exchanges, and even sports associations. And they make sense. Blockchain can stand as a digital ledger that holds all types of information that are linked to a specific time so that a patient’s medical history or a car’s maintenance record are immutable when viewed by anybody. By providing further applications of blockchain technology, Furlonger and Uzureau depict blockchain as an irrefutable source of stored data and information, illustrating blockchain as a glamorous tool that will revolutionize technology and finance.

The monetization of illiquid assets through blockchain, which is one of the core arguments of the book, is exemplified by such entities keeping various digital records. Beyond medical histories and vehicle maintenance reports, assets that would be considered illiquid include intellectual property, physical objects such as real estate, and data. New markets will arise from these assets and can also be represented by one of the best-known uses of blockchain — cryptocurrencies.

Furlonger and Uzureau emphasize the importance of tokens, synonymous with cryptocurrencies, in broadening the digital ecosystem. Facebook’s Libra was given as an example of how a token economy within a company structure can benefit users of that specific cryptocurrency. Supposedly, Facebook’s new stablecoin could have been used to compensate content creators and product developers while marketing Facebook’s platforms. Although the authors do concede Facebook’s incorporation of their own token as a centralized and incompatible with a blockchain-complete model, there isn’t much evidence to suggest that creating a token economy within a corporate structure will lead to any glaring advantages. In fact, Facebook’s Libra was never launched in the two years in its development. According to Decrypt, eight of Libra’s initial investors such as MasterCard, eBay, and PayPal pulled out of the project when it became clear that Facebook was exaggerating Libra’s utility as a stablecoin when there were already established stablecoins such as Tether and USDC(Roberts). These earlier stablecoins were also centralized and pegged to the US dollar, exposing Libra as a cryptocurrency with no real utility that did not fulfill any market needs. Furlonger and Uzureau are strong proponents of integrating a token system to blockchain businesses, and while there seem to be benefits in doing so in terms of giving customers over their data and incentivizing rewards on a specific platform, creating a token system solely for branding purposes could be damaging to the future of blockchain.

In The Real Business of Blockchain, one of the “pillars” that is necessary for the success of blockchain is decentralization. In fact, many cryptocurrencies were created for the purpose of making a decentralized currency that would not be heavily influenced by government interference and central banking policies. Ideally, holding a particular token prevents inflation and external events from affecting the value of the assets you hold because there is proof within the blockchain and the consisting nodes that validate ownership of your asset. However, tokens also provide an added utility of democratizing decision-making processes. The idea of “governance” posits that holders of tokens are able to vote on matters pertaining to the management and implementation of changes to the blockchain system. In turn, this would affect the hierarchy of a corporation and how workers interact with customers, as well as with their colleagues and bosses. In particular, Furlonger and Uzureau seem to be fond of the idea of a “holacracy,” a decentralized management structure that operates on self-organized teams rather than a bureaucratic and hierarchical order. Zappos is usually the first company that comes to people’s minds when thinking about a company that has rejected the standard corporate structure for a modern and decentralized work environment. With a few hurdles to overcome, the company was able to implement a system in which the employees could self-organize into teams that could optimize customer service for online retail. However, with the exception of Zappos, there haven’t been many success stories of holacracies. In fact, it is doubtful if Zappos’s restructuring can be considered a success: according to The Atlantic, Zappos’s turnover rate in 2015 was 30%, with many employees who left citing that the changes to a holacratic structure was the problem(Lam). It is understandable, given that many workers are unfamiliar with such a foreign concept of having to take initiative to set goals and deadlines to complete a deliverable. In addition, instead of making collaboration more streamlined, it is possible for the holacratic system to rather create more turmoil by the lack of focus and accountability which ensues from inadequate oversight.

In the context of blockchain, a holacratic structure may seem ideal; it fits into the narrative of decentralization that has been the focus of blockchain and cryptocurrency. It gives more power to the employees rather than the employers, and offers a solution to the long-standing problem of government and banking institutions enforcing policies that mostly benefit large corporations and not small business owners and their workers. It is highly likely that new blockchain companies will attempt to create different company cultures with varying hierarchies to maximize efficiency and worker satisfaction. However, it is simply too idealistic as of now for bridging the gap between a business owner and an employee through blockchain. According to Furlonger and Uzureau, when worker evaluations and salaries become more transparent via blockchain, they will have more leverage against recruiters to be used in negotiations: “This kind of radical transparency can bring objectivity — dare we say fairness? — to the work environment through access to information”(225). And while it is definitely possible for this transparency to allow workers to be more selective with their assignments, it would be a stretch to assume that blockchain in its infancy will have the ability to dismantle bureaucratic structures that have been in place for centuries:

Despite Furlonger and Uzureau’s optimistic perspective on the possibilities of blockchain, they often concede the potential limitations of the technology. Throughout the book, the authors admit that the technology is still in its infancy and companies will fail numerous times before understanding how to properly incorporate blockchain into their business model and corporate structure. They are also keen on the fact that blockchain faces many challenges, such as assigning liability in a decentralized environment. Similar to the issues with holacracies, when systems are entirely void of hierarchical structure, checks and balances no longer exist to ensure that decisions are made to optimize performance.

Overall, this book offers a great deal of insight into the potential applications and utility of blockchain. However, recent developments in the cryptocurrency space regarding FTX may hurt the blockchain industry. FTX, a cryptocurrency exchange led by Sam Bankman-Fried, met its collapse when it was revealed that the company did not have sufficient funds to meet customer demands. Through a series of bad investments and mismanagement of funds, FTX had no choice but to file for bankruptcy. This has led to many investors pulling money out of crypto, dropping the entire market by around 30% in a single day. Although this has created negative press around blockchain as a whole, it would be unwise to dismiss the plethora of opportunities that blockchain could create in the future. There are seemingly endless but practical ways to incorporate blockchain to increase transparency and efficiency in the exchange of information.