Who will win in the brave new world of Blockchains?
Abstract: Thought-piece on the fast-evolving field of Blockchain and how organisations should make their first steps in planning for what promises to be a revolution in how information, processes and indeed entire businesses are structured and operate.
When you start delving into the world of blockchain technology you hit a point when you suddenly realise that something big is happening in the economy. It even feels revolutionary, like a battle that has turned.
On the face of it the idea seems simple enough. At its base, a Blockchain is made up of data stored into blocks that are timestamped and linked in an unbreakable sequence.
So, how could that be revolutionary? Many people look at the idea and wonder, why is this such a big deal? It’s just another way to design a secure database right?
No one is doubting that a database is a useful invention. It’s been at the heart of the Information Age for at least 60 years, a modern-day cross between a library and a ledger, a storage site and a set of relationships.
A database allows us to keep all our data (or someone else’s data) in one place, hopefully securely and accurately. Companies use them to hold information on their customers, their stock, their trading partners, and all the account balances. So how is another type of database revolutionary?
A Public Blockchain however, does something much more powerful than store data. It adds in a timeline and then allows its own users to validate what happened on that timeline and in what order. There is no central authority needed to check and approve the data. It has to be checked by a number of its own members, independently and anonymously. When you hear that a Blockchain is ‘decentralised’ you can understand how that design levels out the power out across the entire network.
This self-auditing function is a clever use of ‘Game Theory’ and is at the heart of a Blockchain’s ‘X factor’.
Game Theory is built on the premise that people act in their own best interests and will maximise their chance to win (or at least not lose) in any situation. That intrinsic motivation means that if you are checking everyone else’s data you won’t be motivated to falsely approve invalid data. No one will agree to invalid data if it means they won’t be rewarded. So everyone acts in their own best interests and an intrinsic truth spreads out across the network.
The mathematics of it mean that the larger the network and more unknown each network member is, the higher the network ‘truth’ will be. There is a near zero chance of manipulating an entry at a certain network size. And the majority (51%) of nodes all need to agree in cross-check.
So you end up with an inherently stable and ‘truth state generating’ machine made up of hundreds or thousands of distributed computers. There is no central database to fail and no central authority to control access, collect data, edit entries, or charge for access. The user controls access to their account or data and decides who can use it.
As Amber Baldet of Clovyr says “The Blockchain is everyone’s computer”.
How did the Blockchain idea happen?
Blockchain is a new concept but it’s built on a number of nascent technologies that have emerged over many years. One of those is the internet. At its core, a Blockchain relies on the internet to connect distributed computers in a database made up of multiple users.
Web 1.0 and Web 2.0
As the internet evolved we saw two waves of ‘Web’ evolution, often described as Web 1.0 and Web 2.0. In simple terms, Web 1.0 refers to the first internet of connected computers. This is the base layer of the internet (known as HTTP). Every computer on the net effectively became a node. Everyone got a URL (Uniform Resource Locator) as a web address and we could then could communicate with other URL’s. But it was mainly about communication. There was no real commerce.
It took the introduction of the ‘Browser’ to make the Web user friendly in a way that allowed not only communication but a search function for information and products. Technically this was the presentation layer of HTML, JavaScript and CSS. Simply, it heralded what is now called ‘Web 2.0’ and we saw a wave of e-Commerce grow through the 1990’s. With a Browser we suddenly had an easy interface to enter the net and people all over the world became connected in a new digital world of promise. That first part of the wave, the ‘DotCom bubble’, ended with the ‘DotCom crash’ in 2000.
The Platform Economy emerges
But it didn’t stay burst for very long. A new dawn was just beginning. ‘e-Commerce’ emerged, rising like a Phoenix from the ashes. People and businesses had Browsers and Websites. They could now trade over the digital waves. But inside of a decade e-Commerce had been dominated by a few giants. These were and still are the 21st Century equivalents of the Roman Army Legions. They are the five or six global companies that we all know well. They hold court on this century’s battleground, the ‘Platform Economy’.
The FAANG’s, as Facebook, Amazon, Apple, Netflix and Google are referred to, are now seen by many as the gate-keepers. They developed the digital trading platforms that are the new-age bazaars for commerce, accommodation, private transport, communications and software. If you want to do business today you need to pay one of those gate-keepers to get into the bazaar.
Was that really the idea for the Internet?
It wasn’t supposed to be this way. The Internet was going to be open and free, giving us all the rails to run our communities, businesses and communications on. It wasn’t going to be walled off or controlled.
When Al Gore talked about The Information Superhighway’ in the 1990’s he was right. The analogy was apt. Like modern trading routes able to connect open bazaars in thousands of towns and villages across the world. But he didn’t mention tolls. No one foresaw that the trading platforms and routes would be controlled by the new Roman Legions. Those tolls and the gates are now placed wherever the gate-keepers want them. And sometimes we don’t even realise that we pay.
So what is the modern day weapon of the new Roman Legions? It has been said that information is power. The FAANG’s know that. They use data as deftly as the Romans used their troops and gladius short-swords. They’ve worked out how to leverage our curiosity and grab our data. Tell them who your favourite Superhero is or just jump onto an email & storage platform and you can use their services ‘free of charge’. They’ll grab our data and track where we hang out along the way but the services are all ours to use, almost free. Soon our trading and communication produces huge silo’s of data. And we don’t see it. That data is gold.
And if we want to trade in the new cyber bazaar, we need to pay a cut on everything we sell. Don’t like it? Well, you’re always free to develop your own marketplace and hope that you can generate some new network effects. ‘Hope’ being the operant word.
How did that all happen? When Tim Berners-Lee created the World Wide Web he envisioned an open ‘commons’, a resource accessible to all members of society without controls. It’s hard to say exactly how the world of platform economies became platform monopolies but it happened through an alchemy of mobile technology, computer architecture, sociology and the mathematics of network effects.
In terms of technology, computer architecture had gone through a number of cycles from centralised, to distributed and back again. A centralised ‘Client-Server’ structure is the most performant. That architecture is efficient, scalable and generally has good security.
But if you want a big club you can’t store all your membership records on one laptop. And a private intranet won’t work if you want a rapidly scalable and large customer database. You will also need very secure backup. How about a database in a Cloud? Who’s Cloud? One of the gate-keepers of course. Well at least they’re big and trustworthy so, as they say, “If you’ve got nothing to hide, it’ll all be good”.
In many ways it was a land grab. With the power of ‘network effects’ the winner took all.
Information really is power and controlling access to it turned out to be even more powerful. But if you run a business that captures, stores and communicates information securely then the easiest way to do that means using a platform controlled by one of the super companies. In essence that is really what the FAANGs provide for us, secure access to a walled off bazaar and all its members through one central controller. To pay for it we hand over a cut of our data on each post or transaction. On the net your data isn’t really yours.
Blockchain just entered the battlefield.
Sometimes things change. By the beginning of the Punic Wars the Roman Army had been the dominant force in antiquity for over two hundred years. They used their size and skill to defeat anything that stood in front of them. That was until they came across the gifted Carthaginian general, Hannibal Barca. Hannibal had a much smaller force but he used manoeuvre and composite forces to outsmart the Romans. By avoiding their Centre of Gravity he eventually inflicted one of the greatest defeat’s in military history, at the Battle of Cannae, in 216 BC. Today, it’s starting to feel like Blockchain may be the Hannibal of our times.
Suddenly there is a new and open marketplace emerging. Like the original concept for the World Wide Web. This time it really could be owned by everyone. Open for anyone to come and go onto the Common. We can play by rules that we all decide. Even our competitors can choose to be on the same ‘co-opetive’ (a mix of co-operation and competition) battlefield with us. It’s a different game we’re in now. We can mutualise the costs but we get to take our own slice of the profits. Instead of paying to come onto the market platform we can design the market platform and own our bit. Blockchain technology can give us control of our own data and our own transactions.
How will this play out?
It is hard to predict exactly how the world of blockchain will evolve. Partly that is because the technology is evolving fast. Partly it’s because there are different configurations of blockchains around.
There is no one ‘Blockchain’. But there are broadly, at least two classes of Blockchain. Simply put, they can characterised as Public chains and Permissioned chains.
Public chains are open for anyone to join. They are decentralised in terms of ‘control’ and highly censorship resistant as they run on a collective type of governance model.
A Permissioned chain by contrast, has controlled access, usually with a more centralised form of governance and typically a more controlled set of governance rules. They are effectively private clubs that operate in different industrial or social sectors.
While the specifics of this evolving field are hard to determine the key strengths of a blockchain, that is, the capacity for decentralised governance, distributed computing power, high levels of encryption, censorship resistance, immutable trace of records and high levels of privacy mean that we can make educated guesses at future developments and responses.
In the first instance it is likely that we will see an evolution to a business world based more on ‘co-opetive’ business ecosystems. This will enable greater competitive advantage through co-operation of multiple players. Blockchains don’t work within a single organisation. They are best at leveraging a team game. Blockchains enable a ‘system of systems’ that shares a real-time, decentralised yet common view of validated data. Businesses need to think through how this will play out in their current sphere and the impact on their current competitive advantage.
We will also see a shift in the gate-keepers of informational data to more individualised control. That will likely result in more democratisation of markets and market platforms. Businesses will need to change the angle on their offering as the power balance shifts more towards access to your information and your attention. Customers will choose who can access their information. Individuals will also trace how that information is used and with whom it is shared. And each time that data is shared the owner will be paid for it. The concept of customer loyalty will need to co-evolve in new ways.
But beware, the Roman Legions won’t die easy. Over the course of the three Punic wars 2300 years ago, the Romans learnt to adapt. And perhaps Hannibal missed his chance. Today their equivalents will fight their ground and will become shape-shifters. But the ground is changing fast and as fast as the dominant players shape-shift there will be many new opportunities emerging. The advantages of a well designed, open, truly decentralised Blockchain are anti-fragile in nature. However those opportunities will require the skill of Hannibal to see and exploit. It will require a ‘manoeuvrist mindset’ for existing businesses to adapt. Hannibal was able to win at Cannae only because he understood Roman military strategy and was able to disrupt their strength.
The new gate-keepers will be the ones that both access the most accurate informational relationships and can also use those relationships as quickly as possible. Instead of capturing the platform you will need to manoeuvre in this new Third Web. In the this new ‘system of systems’ gate-keeping will be less effective. Anti-fragile design will be the new weapon.
What can you do as an individual or an organisation to prepare for this new battleground?
The worst thing to do in this rapidly evolving situation is bury your head.
And note that it won’t all hinge on the cryptocurrency play. While a tokenized economy is likely, some people don’t believe that we’ll all end up trading in cryptocurrencies. Whether we do or don’t, you should know that Blockchains, specifically Permissioned Blockchains, can exist without cryptocurrency. In any case, it is likely that we will see many different Blockchains and Blockchain hybrids emerge.
The first rule of strategy is to define your Main Aim. Then, as the ancient advice goes, you must know yourself. Specifically, both your own strengths and weaknesses, and those of your enemy.
You are likely ahead of the competition already by being aware of Blockchain. Now become anti-fragile to co-evolve with this new economy.
About the author:
Kris Vette is a Blockchain Specialist helping people and business to shape anti-fragile strategy. He runs Chain Ecosystems www.chainecosystems.com
