In an even more globally connected world, the need for efficient ways to process contracts, transactions and to safely record and protect its integrity are essential to accelerate the future of an extraordinary digital transformation of the global economy - “Blockchain promises to solve this problem,” (HBR, The Truth about Blockchain, January-February 2017).
Think of blockchain as a public ledger that permanently records and verifies all the transactions (from the very first transaction). It’s the technology at the heart of cryptocurrencies, such as Bitcoin, Ethereum, Dogecoin, many other virtual currencies, and smart contracts of unique digital assets, called non-fungible tokens (NFTs). Blockchain generates a digital record and signature of every unique, validated, securely stored, and publicly shared transaction, which means a guarantee of traceable proof of ownership of assets. In this future digital world economy, individuals and organizations across the globe, machines, and algorithms would freely transact and interact significantly faster than nowadays banking and financial brokers. And that is the potential of blockchain, but foundational technologies like blockchain take several years to gain mainstream adoption as “the level of complexities - technological, regulatory and social - will be unprecedented,” cited in the HBR article above.
Patterns of Technology Adoption
Let’s review the adoption process of foundational technologies - TCP/IP, for instance, was introduced in 1972 as the basis for email among scientists on ARPAnet (the percussor of the commercial internet). It established a new paradigm for telecommunication architecture that removed the need for dedicated private lines and massive infrastructure. The initial adoption was slowly within the firm using “private network” then more broadly into the mainstream with the advent of the public web networks in the mid-1990s. Along the way, many new disruptive technologies (software, hardware, and services) were created to support the exponential growth. It took over 30 years for TCP/IP to reshape the economy.
New Architecture
Blockchain, a peer-to-peer network over the internet, was introduced in October 2008 to enable Bitcoin’s (the first cryptocurrency) decentralized transactions. Parallels between blockchain and TCP/IP are clear. A team of volunteers worldwide kept updating the open-source core software, and both unlocked new economic value by reducing costs. In a blockchain system, the public ledger is replicated across many identical databases, each hosted and maintained by interested parties. When change happens in one copy, it gets broadcasted and replicated in all other copies simultaneously. All take just a few seconds! Securely and verifiably.
A Framework for Blockchain Adoption
There are two contextual dimensions used to explain how foundational technologies evolves:
Degree of novelty, and
Amount of complexity and coordination.
Applications high in novelty and complexity take decades to gain mainstream acceptance but can transform the economy - like self-executing smart contracts. The stage of adoption typically happens in four phases:
Simple Use: those have low-novelty and low-coordination applications - better, less costly, and highly focused solutions.
Localization: high-novelty and low-coordination - specific, private decentralized apps on blockchain networks.
Substitution: low-novelty and high-coordination - Cryptocurrencies that aim to replace entire ways of doing business.
Transformation: high-novelty and high coordination - “smart contracts” their adoption will require significant social, legal, and political change.
Guiding Approach to Blockchain Investment
The easiest place to start is single-use applications (i.e., add bitcoin as a payment mechanism) that would reinforce the ecosystem of blockchain capabilities. Another would be using blockchain internally as a database for managing physical and digital assets. Off-the-shelf, cloud-based blockchain services are now available from start-ups and large platforms, making it easier to experiment. Transformative applications are still far away - businesses will need to develop expertise in blockchain programming and rethink their business models. Stand by playing small, developing the know-how to think and play bigger.