Not everything needs to be on-chain.
There are a lot of instances where the blockchain aspect of a business model is an add-on rather than a core component. And there are instances where this is okay, mainly when the blockchain aspect sustainably drives the growth of the platform or service. Still, creators must be careful when walking this fine line because it would do their app a disservice if the blockchain component created friction that will ultimately end up harming the business.
In many of the conversations I have with prospective blockchain entrepreneurs, they are eager to incorporate elements like NFTs into their service offering—but more often than not, their platform doesn’t really need it. Yet, entrepreneurs are attracted to these arguably unsustainable ideas, probably because some of these blockchain buzzwords have been plastered throughout media and marketed as factors that have made people significant amounts of money with minimal effort.
In this article, I will explore the instances where using a blockchain makes sense. In each of these instances, a public distributed immutable ledger actually improves a business model or operation by making it more efficient.
What makes sense?
If a business or industry already uses a ledger, then it’s possible that switching to a public ledger that updates in real-time could improve efficiency, especially if the incumbent business model suffers from a lack of transparency or its ledger’s entries experiences lag between updates.
When ledger entries are being recorded on-chain while they are being produced, it becomes much harder for transaction history to be erased, amended, or unaccounted for because the original record will live on-chain, will update in real-time, and can be used as a universal source of truth in a system.
The concept of an immutable ledger that records data in real-time can solve much more than problems that relate to transaction history. Any industry or process that experiences friction due to a lack of transparency can benefit by using a public shared ledger because it will eliminate the information black box or information asymmetries that lead to inefficiencies.
Businesses with siloed data and centralized computing power looking to mitigate the risk of system failure or system outages might benefit by running their process on-chain through a network of decentralized nodes. That way, they can eliminate the single point of failure and increase the security of their system.
And, of course, bringing it back to the basics; if your system or business would benefit from a faster, more efficient, lower-cost payment rail, where transaction settlement happens nearly instantaneously and the fees the middle man (network) takes are exponentially lower than the fee that most financial intermediary currently takes, then a blockchain might benefit your business.
Adjacent to settlement and transfers, businesses that use contracts can benefit from digitized contracts that are automatically executed once certain criteria are fulfilled. When the contract, settlement, and transfer elements are combined, it paves the way for programmable money, which many industries, especially those that deal with finance and banking, find value in.
Business models that last
Everything I covered in this article has been very general. I haven’t discussed specific industries or business models. I have only addressed the core features of a blockchain and a few of the things it makes possible.
I’ve taken this approach because I believe that, in the long run, the systems that have the most success will be using the blockchain in its simplest form. I also believe that, in many cases, simple systems and simple machines are superior to complex systems and complex machines.
When businesses and developers turn to a blockchain to take advantage of its core features, they will be doing it because they can truly become more efficient by using blockchain, not because they can slap the word NFT, Metaverse, or Web3 onto their product or service to raise more money or create a flash in the pan user growth and revenue streams.
That being said, it’s important to acknowledge that there can be value in integrating a blockchain into your business in some capacity, even when the company doesn’t really need it. This is because the word “blockchain,” “Web3,” “NFT,” and “Metaverse is widely recognized in the media and investing circles, and many people have heard the tales of the individuals who leveraged these blockchain-based concepts and platforms in their earliest days to generate a fortune. However, the revenue streams that most implementations of those blockchain concepts create are not usually sustainable on a long time horizon. For example, we are beginning to see the NFT trend die out. But once again, these concepts do have the ability to generate significant amounts of profit while they are new, and that cannot be overlooked as it incentivizes many businesses and individuals to use blockchain to generate revenue.
Not every business needs a blockchain, but if a business decides to use a distributed ledger for something that doesn’t require the core features of a blockchain, or adding a blockchain actually makes the business process less efficient because it adds a layer of friction, then the business might want to reconsider using a blockchain at all. There are exceptions to that idea, but in nearly all of those exceptions, the blockchain is being used as a tool that leads to user growth and investment. In these instances, it must be acknowledged that the business’s use of a blockchain most likely won’t be significant to the businesses operations and revenue streams in the future, but that they do have the potential to generate revenue for a business in the short term or while the “insert blockchain buzzword” trend is hot.
Watch: The BSV Global Blockchain Convention panel, The Future World with Blockchain
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