Off the 'chain - why that shiny blockchain platform you're looking at might be a bad idea

This is an informative break down of the current state of blockchains. I think that the conclusion - that we're way off from "one blockchain to rule them all" - is correct. The technology is no where near its final form and its not a "thing" that once applied, makes everything better. But, there is no doubt that blockchains have huge benefits and applications to services many of us want, and that's why you're seeing ton of different companies, new and old, use the terminology of this new tech to generate interest. That will lead to some big challenges for the adopting companies, their investors, and the customers that will look to leverage the resulting products and services for their own needs.

Because there is no single blockchain that can feasibly be used by everyone, many companies are turning to proprietary 'chains. But is that practical? Should every company/service/product keep its 'chain siloed? I'm not so sure that it's a practical idea.

First, a tiny bit of background without getting too technical:

If you're looking for a simple understanding of what a blockchain is, take the following from Investopedia:

"A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically."

Don't get too hung up on the "cryptocurrency transactions" aspect and think that blockchains are limited to financial transactions. They're really about recording the movements of data, whether that represents a monetary transaction or some other form of data.

The whole concept of blockchains is to have a decentralized (no single person or entity owns it) ledger that's tamper proof and immutable, meaning that there's an audit trail to verify all its data and that you can be (relatively) sure of its integrity.

Tying your business to a single blockchain platform may be bad business.

If you take the concept of KodakOne's platform (my current favourite example of a bad application), they're suggesting that their platform will handle the registration of the digital ownership of images created by its users and then the purchases of licenses of those images by others. It will be decentralized across the user network and you'll be able to trust that the registrations and transactions will be verifiable. Not a bad idea in theory, but in practice a problematic one to be sure.

In industries where there exists multiple players - businesses offering similar services - there exists choice for customers. They're free to choose the platform or platforms that they believe are in their best interest. Sticking with digital images/photography, the creator of the work will likely want to offer their product on whichever point of sale platform that the end customers will be using. For digital photography: Shutterstock, 500px, iStockphoto, etc. To limit to a single platform could mean that they're risking their exposure to potential sales. More broadly, limiting exposure is a risk and rarely a good business decision. It's only mitigated in instances where there are other benefits that outweigh the risk.

Furthermore, no company is going to cede this responsibility of providing the single immutable registration of their digital assets to their competitors, i.e. competitors of Kodak won't settle on allowing them to be the definitive record keeper of all registrations and transactions.. Therefore, if customers demand the benefits of blockchain from their sales platform, all will have to build a competing blockchain service into their platform. We're then left with competing 'chains without consensus. This fracturing will be bad for the registrants and the end customer, alike. If I were to buy an image from KodakOne, how will other platforms know that I have lawfully done so? When it comes to their promise to enforce the rights managment, this will lead to huge headaches and break then entire purpose and enforcement process. We're going from shiny to messy, quickly!

The only way to avoid this would be for the content creator to limit their points of sale to a single platform so that there is only a single ledger to follow. 💩.

What if I told you that your platform did not need a proprietary blockchain?

If the purported benefit of the blockchain service that's being offered to you is that it will be the definitive record of your work or property and the transactions thereof, you need to be careful. Hitching your ride to that wagon is limiting yourself & could be at odds with your business interest. Investors should be wary of this too as the task of becoming the single record keeper is enormous.

A 'chain that is core to the platform is in the provider's interest, not yours. Proprietary blockchains serve to make the platforms themselves sticky in that they only serve to "encourages its continued use as opposed to that of a competitor. also called lock-in."

Again, it's only a benefit if that benefit outweighs the alternative of your and your customer's choice of platform or if the platform is successful in owning an industry.

If we go back to KodakOne, the blockchain component should not be central to their offering if the interests of its customers is a primary concern.

Instead, a non-proprietary, publicly accessible blockchain could be used. One that can be used by photographers to generally register their work, and can be plugged into by all competing platforms so that a purchase can be recorded AND seen by all others. This, itself, would be much more useful to the content creator and end customer.

So, what does this mean for buzzy-blockchain offerings?

A couple of things:

• Investors should consider the full application of the technology they're looking at investing in. If an ICO is purporting to boil the ocean, or own the entire space that they exist in, it's likely wishful thinking. Competition will happen and the resulting fracturing will be bad for all. The investor then has to ask, does this investment represent what I think will be the new de facto standard for the industry? If not, avoid.
• Those looking to use blockchains should consider what it means to become tied to a single platform. Just because it does something that seems useful does not mean it will be a good business decision to participate in it.
• Not every idea can or should be augmented with a blockchain. And if a platform is keeping its 'chain to itself, it's may not be leveraging the full benefits of the technology. Weak applications are rarely the best.

Blockchain does not equal bitcoin, nor does it equal the cure-all for every half baked idea. When looking at a company that tells you it's going to solve a problem with blockchain, look beyond the buzz terms and think critically about how that makes sense. It often won't. But where it does, you may have found a 💎.