When Do You Need A Blockchain?

It seems easy to slap blockchain onto an idea and expect millions of users to come rolling in. This notion seems especially true in the “Blockchain Renaissance” of 2017 and 2018. The complex truth is, however, that to achieve mass adoption, one must overcome the hurdles of user experience and gain massive advantages against the centralized incumbents. The traditional banking system and FANG companies have a strong foothold in our society. Although it can surely be said that blockchain is a truly disruptive technology, that doesn’t necessarily mean that your specific idea is guaranteed to actually disrupt anything.

When do you need a blockchain? Instead of providing a list of industries and sectors to which blockchain can be applied, we are going to take a look at the abstract concepts that give blockchain a leg up on traditional, centralized solutions. The more of these concepts your idea fits into, the more likely your idea can benefit from using blockchain.

When Blockchain Facilitates Better Deployments

Let’s assume your idea requires the transfer of value of some kind between independent parties. After all, that is a staple of most businesses! Contrary to most existing structures, however, blockchain has two-way value transfer already baked in. It is equally easy for a user to receive value as it is for them to send value. When you are developing the architecture of your solution, the “value transfer” layer is already taken care of, well before you spend your first hour or dollar on development.

You are also limiting your liability because you place the responsibility of protecting the value onto the users. If they lose their private key, you are not liable. As long as they control their private key, their funds are safe and you will not have to worry about spending time and money protecting their funds directly. Thus, you might need a blockchain if you realize that your idea requires a lot of time and funds to develop the value transfer layer using standard means, and the traditional centralized version of your idea assumes a lot of security risk that would cost a lot of time and money to mitigate.

When the Transaction size is Small

Imagine one billion dollars in quarters down in the deepest depths of the ocean. Now imagine each quarter is housed inside a clam. It is economically impossible to harvest the billion dollars. You would have to invest in underwater robotics technology to bring all the clams up, and even after spending millions on that, you would have to hire enough shuckers to open four billion clams, which will have an unreasonable labor cost and could take dozens of decades. Micropayments are a huge hassle for the traditional financial system, as VISA, merchant processors, and banks eat up a substantial value from each transaction. There is a limit at which it is no longer economically feasible to use the traditional system for micropayments. Blockchain, however, allows you to receive four billion quarters’ worth of value from four billion different people all around the world, instantly and at a fraction of the cost of using the traditional system, giving us a much more sustainable micropayment system.

Business models such as freemium apps try to work around the microtransaction problem by using in-app currency. You spend $9.99 to buy one hundred thousand Sparkles, and then you can buy a digital hat for your avatar for 10 Sparkles. These business models, however, don’t let you earn Sparkles and then cash out of the system. Blockchain has two-way value transfer built into its architecture. When your idea involves the two-way exchange of goods and services worth tiny amounts, it’s a great reason to take a look at blockchain. Further use-cases include automated interaction between internet-of-things (IoT) devices or micropayments to online content creators based on time spent reading an article or watching a video as well.

When users have multiple ways to spend and earn on your platform

Now that we’ve touched on the significance and advantages of blockchain for two-way value transfer within your platform, it should be noted that blockchain also provides a significant leg up when your platform involves earning tokens that can immediately be spent on something else within the system. A real-world example of this is STEEM where you earn STEEM for posting content, and you can choose to cash out that STEEM or use it to get Steem Power, increasing your influence in the network. For the average user, cashing out can be a bit cumbersome as it involves multiple steps and takes time and a bit of a learning curve to achieve. Using tokens earned for in-platform goods and services facilitates a seamless user experience that benefits the consumers, the providers of goods and services, and the overall health of the microeconomy.

Let’s apply this concept to an imaginary case. This is a rough idea, but effective in demonstrating the concept. Let’s suppose we want to create a platform for restaurant blogging and call it Morsel.

The way Morsel works is users will write short articles reviewing restaurants. Usually we'd require the writer to be at the location for the article to fend off scammers, however, there are many ways to fake GPS. For the review to be presented on the restaurant page, the writer pays a small number of MORSELS to be locked in smart contract escrow. A critical mass of reviews for different places must be generated to validate the writer’s reputation. Once this is achieved, the reviews become public and readable by potential diners.

The user experience of the app is focused on reading these reviews and responding to calls-to-action. When a potential customer makes a call-to-action attached to a specific review, such as pressing “get directions” “call now” or “order on GrubHub” the writer gets a kickback of MORSELS from the restaurant that pays for the lead conversion. After the dining experience, the customer can corroborate the review through an upvote, tip the writer directly as thanks for an accurate review, or downvote, saying that the review was not in tune with their dining experience.

The review feedback dictates whether the MORSELS in escrow are released back to the writer or not. If there is a positive correlation (a lot of people agreed with the review, be it good or bad), the MORSELS are returned to the writer. Restaurants can use MORSELS to advertise on the network and provide a continuous source of income for writers.

Now we can apply this rough sketch as it pertains to the concept of using blockchain for A-B earn-spend methods. The writer earns MORSELS through review tips. They could cash out, but it would be easier to put those MORSELS in escrow to write more reviews and thereby get more tips. They could also spend the MORSELS at participating restaurants, essentially eating for free. The restaurants purchase MORSELS directly from the app to fund its social economy.

When your Users are Unbanked

If a large group of your target market is unbanked, blockchain has serious potential to assist you in executing your idea. For business to be conducted over the internet, the traditional banking system or blockchain are the only options. If the traditional banking system is unavailable, the only place to go is blockchain. Uber and Lyft cannot exist unless both driver and rider have access to traditional banking. As a consumer, you can use prepaid debit cards to purchase goods and services online or through apps, but earning poses some major hurdles. Cryptocurrencies like Bitcoin appear to have a lot of promise in underdeveloped areas.

Suppose there is a platform called Thread. Thread connects independent fashion designers and clothing makers in developing nations to the rest of the world. Consumers can acquire one-of-a-kind pieces from all over the world with a story attached, all while directly stimulating the economy of the affected area. Consumers pay for goods in fiat, popular cryptocurrencies, or THREAD tokens. If they pay in fiat or other cryptocurrencies, the Thread exchange partner automatically converts it to THREAD tokens (or maybe other cryptocurrencies) and delivers the payment to the designer. Consumers can also “hire” designers to make custom one-of-a-kind articles of clothing to spec based on consumer needs. Let’s also assume that the THREAD token has some assorted magic use and benefit on the platform- the technicals aren’t relevant for this example.

Now we can tie it all together according to this concept. The designers do not need a bank account to do business on Thread. They can receive payment for clothes in cryptocurrency, and buy raw materials locally or online with that cryptocurrency. They can also use Bitcoin to buy goods and services wherever it is accepted in their area. Because the platform runs peer-to-peer, there is no bloated middleman or corrupt organization on the designer end. The money goes directly into the hands of the garment provider. If your idea aims to include the developing world in some way, you can overcome the hurdle of your participants being unbanked by using Blockchain.

When Automation of Transaction is Key

If your idea involves the disbursement of value to multiple parties on a transaction event, blockchain is ideal for making this process easy to develop and deploy.

A common and obvious application of this concept is intellectual property management. For example, when a song is sold, it’s not just the artist who needs to be paid. The distribution platform, the manager, the agent, the lawyer, the producer, the writer, and a host of others are usually involved in back-end payouts from the sale. The same goes for films, patents, and other forms of IP. Utilizing blockchain and smart contracts allow for efficient and transparent management of payouts to multiple parties. Blockchain limits conflicts that can arise from bad actors in agreements that cause delays in payouts. Instead, the payouts can happen autonomously and instantly. Thus, if your idea involves facilitating trust between multiple parties on financial agreements, blockchain can offer a significant advantage versus traditional business structures.

The notion of using blockchain in Internet-of-Things (IoT) applications is very intriguing, to say the least. In a world where millions of devices interact with one another without human intervention, blockchain can provide the protocol for data transmission and payment between devices. Blockchain makes IoT networks more efficient by removing the cumbersome traditional financial system from the equation. Devices can provide services for each other and pay each other without bogging down VISA and merchant processors or paying high fees for microtransactions. The traditional financial system is a critical bottleneck that affects true progress on the IoT front. In the future, however, cars might communicate with each other directly about hazards or optimal routes, much faster than driving apps ever could. Vending machines and printers might automatically reorder supplies, streamlining maintenance.

Solar panels might sell excess electricity directly to devices that need them. Imagine a property owner installing a solar panel cluster that powers both their property and an electric vehicle power station, and other drivers can simply use the power station at any time, pay in tokens, and the property owner profits. In this IoT case, the car would pay the station automatically without the driver having to actually do anything. Moreover, drone swarms could communicate with each other and pay each other for the information. Devices may change ownership often which is easy to work with because the value the device holds is intrinsic to the device instead of the device owner. Blockchain in IoT really opens up the imagination to brand new possibilities, all facilitated by Blockchain’s advantages in micropayments, peer-to-peer transactions, efficiency, and security.

Last Updated: 2/14/2019, 11:37:06 AM