I came to the surprising conclusion after studying blockchain consortia. You will understand this one key aspect of consortium success as you read this article and be able to apply it to your blockchain project success. Knowing it and walking into it with an open mind will prevent nasty surprises.
Typically, a new blockchain initiative is going to start with a small group of initial founding partners. The hope is that the consortium will eventually grow and deliver ever-increasing value to all the participants. As the business blockchain network goes through its life cycle and matures, it helps to focus on different levers of value creation. We can use a blockchain network maturity model to help look at these levers during the business network’s growth. It is essential to identify which lever will deliver more value at different times in a network’s lifecycle.
Bilateral Transactions: Value Creation by Two Partners Contributing to the Dataset
When you are starting out, you can stage the network economics first to tackle the bilateral use cases. Working first on bilateral use cases will enable the participants to get some value early on. These use cases are not necessarily dependent on adoption by a large number of participants to provide value. For example, in a use case using smart contracts to enable automatic release of payments for goods received at the warehouse. In a non-blockchain world, one of the frictions present in all kinds of settings is how challenging it can be to monitor and enforce contracts. Just because you have a contract with another party does not guarantee that the other person or entity will follow through on what they said they were going to do. One of the promises of smart contracts in blockchain is that the contract will automatically execute whenever the contract conditions are met. Having a smart contract adds value by increasing the credibility of both parties’ commitment to the business relationship. It takes away the counter-party risk.
Multilateral Network Effects: Value Creation by Multiple Partners Contributing to the Dataset
This layer of value creation refers to the network effects. Network effect comes into play when you bring together various participants. They have increased value because others are now participating. You can then expand the use cases that the network is tackling. You can now include use cases that will benefit from multilateral transactions as the group matures and grows. In the case of Synaptic Health Alliance, multiple insurance payers come together to share a set of data. Here, the network’s value is higher if more participants are adding to the data pool. Growth in the number of participants will more likely be the case as the group matures.
Improved Offerings: Value Creation through Better Solutions Using Existing Data
Improved offerings come about by taking data that others have contributed, analyzing it, and coming up with better solutions. In the case of Siam Central Bank, the banks could reduce the cost of loans because of reduced risk. As Orapong explains for SCB, in the past, because invoice approval would take three weeks, banks had to wait for long periods before being able to provide financing. Now banks have three more weeks to offer invoice financing to the supplier because the invoice approval time has gone down to one day. In developing countries, banks also have added risk because the supplier could be using the same invoice to approach multiple banks for invoice financing. Banks need to price the funding to compensate for the risk. But with this platform, SCB is the payment bank and financing bank. The bank sees this trade from the time of PO issuance to the point that goods were shipped and the invoice issued. So they know the invoice is real, and they do not have any collection risk: “With that, rather than providing financing at 18 percent, you are providing at less than 5 percent.” This situation enables them to provide improved offerings based on the same dataset using a blockchain-based solution.
New Use Cases: Value Creation on New Use Cases Enabled with Existing Data
Next: where you can use the consortium that has been bootstrapped for one use case and launch another use case. When looking to build new use cases, you should first look at the data that has already been contributed. Based on that, decide the next use case to launch. It is not advisable to start on a use case, which would require a whole new set of data and participants being onboarded. Try to build it off of the success of the previous one.
The blockchain network maturity model is not to say that value creation will always be linear. Depending on how ambitious the team is, you can choose to tackle value creation using any levers. However, understanding which lever you are using and matching that to the network’s maturity will increase chances of success.
All in all, blockchain can deliver much economic value to groups trying to use it to solve a common challenge. But it would help if you were clear about what drives the creation of that value. Additionally, have a line of sight into who is getting the value. As we saw in Chapter 2, one of the pitfalls is that it’s not always clear to the project participants what exactly blockchain is intended to do, compared to existing technologies. In the case of a blockchain project, you have to look at value for all participants, bringing in aspects of network economics. Individual participant value is all well and good. Still, without considering the value derived by all participants, we are setting ourselves up for failure.
Business leaders who do their homework and understand network effects take time to manifest can greatly increase your chances of a successful blockchain technology consortium. Quite often, people assume that joining a consortium will put them on a path to success, but there is much more to it than that. Blockchain technology consortia start small. The creation of value helps it grow as more companies join in. Throughout its maturation process, it goes through different stages. In each stage, participants can benefit in different ways. This is surprising to most people because they have a tendency to think that they will get value from the consortium from the beginning.
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