Where blockchain technology has been and where it's going

Blockchain has already been a business disruptor, and we expect it to significantly transform industries, government, and our lives in the near future.

The great divide

A significant divide exists between the cryptocurrency and Initial Coin Offering (ICO) world, and the world of regulated business. The latter consists of banks and financial institutions working collectively to assess market potential and operational efficiencies.

Both sides of this division have taken advantage of the momentum around blockchain to further their interests. The blockchain ecosystem has challenged the status quo and defied all odds to make a point—often behaving like an adolescent. It is driven by new business models, promises of disintermediation, and interesting technological innovations.

As blockchain has gained momentum, bitcoin value has experienced a comparable rise as an asset class and contributed to the rise of other cryptoassets, such as ether, Bitcoin Cash, and so on. Blockchain momentum also has given rise to alternative finance and fund-raising models, such as security token offerings (STOs), simple agreements for future tokens (SAFTs), and initial exchange offerings (IEOs). These are challenging not only traditional finance structures and business models, but also the regulatory framework that governs the financial infrastructure.

On the enterprise side, there are a growing number of industry initiatives around clearing and settlement to enable faster settlement and interbank transfers, transparency through digitization, symmetric dissemination of information in supply chains, and creating ad hoc trust between Internet of Things (IoT) devices.

There's a common theme here—that blockchain is here to stay. As it continues to evolve and generate innovative solutions for industry use cases, it will keep inching toward maturity and deliver on its promises of efficiency and significant cost savings built on the foundation of trust.

An economic model for blockchain delivery

Blockchain networks, underpinned by blockchain technology, may bring transformation or disruption to industries, but in any case, to thrive, blockchain needs an economic model. If disruption is the aim, investments in technology, talent, and market synergy can be combined with the lure of economic incentives. ICOs, for example, typically rely on tokenomics, a term that describes the economic system of value generation in those networks. The token is the unit of value created by the system or network—either through making a platform for providers or consumers, or through co-creating a self-governing value network in its business model that various entities can use to their advantage for creating, distributing, and sharing rewards that benefit all stakeholders.

The ICO front, largely funded by cryptocurrencies, has defied current fundraising mechanisms in venture capitalism (led by crowdfunding projects). Importantly, the struggle to discern the difference between a security and utility coin is disruptive in principle.

ICOs look to create an economic system built on the principles of decentralization, open governance (or self-governance), and transparency, a system that rewards innovation and eradicates disintermediation. ICOs saw some initial failures and some successes, but they nevertheless provide a preview of the future, where cryptoassets will become a basic unit of value—with valuation and fungibility defined by the network they originate from—fueling an economy built for and around innovation.

On the enterprise front, there's been more focus on understanding the technology and reimagining ecosystems, business networks, regulations, confidentiality and privacy, and the business models that impact blockchain networks in various industries. Enterprises looking to explore blockchain want to see quick proof points, use cases that can demonstrate results quickly and help them innovate with blockchain.

Blockchain is helping industries move to a more symmetric dissemination of information by providing built-in control of transactional data, provenance, and historical context. This can lead to more efficient workflows and transform business processes. Many early projects, however, didn't focus on the core tenets of blockchain (which we discuss in some detail later in this chapter), leading to disintermediation, decentralization, and robust self-governance models. There's a good reason for it, though: industries and conventional businesses tend to be focused on their current business agendas, models, growth, and, above all, regulatory compliance and adherence. This emphasis on current business operations means they're not naturally inclined toward disruptive models.

Learning as we go

With any new technology, there is always a learning curve. As blockchain evolved and we began to work with regulated industries, we quickly recognized that, in such industries, there are important design considerations to address—things like identity, confidentiality, privacy, scalability, and performance. These elements can have significant cost implications when it comes to designing blockchain networks, as well as the business models that govern these networks. These challenges have not only been interesting to solve; they've also had a positive effect on conventional, regulated industries and businesses by re-energizing innovation in these organizations and inviting the best talent to join in tackling these challenges. Businesses are recognizing that ecosystems and networks driven by blockchain technology will contribute to progress and success.

Permissioned networks (regulated, conventional, and enterprise business networks) may also need to begin uncovering an incentive model to motivate organizations to join a platform that promotes the idea of creation, distribution, and the sharing of rewards benefitting all stakeholders. The economic incentives behind tokenomics can't be blindly adopted by a lot of conventional businesses and industries, but that doesn't mean those industries shouldn't start the journey to explore possible business models that would enable value creation and elevate some desperately needed modernization efforts.

The promise of trust and accountability

Blockchain technology promises to be the foundation for a secure transaction network that can induce trust and security in many industries that are plagued with the systemic issues around trust and accountability. From a technological point of view, blockchain facilitates a system of processing and recording transactions that are secure, transparent, auditable, efficient, and immutable. These technological characteristics lend themselves to addressing the time and trust issues that plague current-day distributed transaction systems.

Blockchain fundamentally shifts the multitier model to a flat-tier transaction processing model. This carries the promise to disrupt industries fundamentally by disintermediation, inducing efficacy in new system design, or simply creating new business models.

Disintermediation indicates reducing the use of intermediaries between producers and consumers, such as by investing directly in the securities market rather than going through a bank. In the financial industry, every transaction has historically required a counterparty to process the transaction. Disintermediation involves removing the middlemen, which, by definition, disrupts the business models and incentive economies that are based on mediation. There's been a wave of disruption in recent years as a result of digital technologies, which have, in turn, been driven by marketing insights and the desire for organizations to provide a richer user experience.

Blockchain is a technology that aims to catapult this disruption by introducing trade, trust, and ownership into the equation. The technology pattern represented by blockchain databases and records has the potential to radically improve banking, supply chains, and other transaction networks, providing new opportunities for innovation and growth while reducing cost and risk.