understanding the affordances of permissionless

UNDERSTANDING THE AFFORDANCES OF PERMISSIONLESS BLO CKCHAINS: VALUE CREAT ION AND CAPTU RE POTENTIAL FOR BLOCKCHAIN-BASED BUSINE SS MODELS

B117306 Disserta tio n Presented for the Degree of Entrepreneurs hip and Innova tio n (MSc) 2017-2018

University of Edinburgh Business School Edinburgh, UK 23rd August 2018

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This study explores the value creation and value capture potential of blockchain-based business models in the ecosystem of permissionless blockchains by understanding the technology’s affordances. Due to the increasing adoption of blockchain, a clear understanding of blockchain’s affordances is advantageous in order to exploit the innovation potential and create viable business models around this technology. Thirteen individuals who either have professional experience in the blockchain ecosystem and/or published research in this space were invited to participate in semi-structured interviews. In addition, twenty-four documents were analysed to triangulate the primary data and provide better in-depth insights. The findings from this study suggest that the affordances of permissionless blockchains include neutral characteristics, opportunities, constraints, and potential solutions to technical constraints, having regard to the social context. These characteristics allow the creation of a conceptual framework that includes value creation and value capture modes for blockchain-based business models. Value creation for blockchain-based business models in the ecosystem of permissionless blockchains follows the exploitation of opportunities, the overcoming of technical constraints, a strong and large community, and a layer-and-type combination of network and protocol solution and application platform. Value capture is distinguishable into value capture through monetising users and value capture through investments or donations, whereas value capture through monetising users proved to be very difficult. Furthermore, as the affordances of blockchain technology yield novel forms of business models, value creation mechanisms, and value capture mechanisms, it is demonstrated how blockchain-based business models represent a very specific expression of traditional business model theory. The results of this study serve as a guideline for individuals who are keen to understand the holistic affordances of permissionless blockchains and interested in building a business model strategy that can be applied to take advantage of opportunities, overcome constraints, and create and capture blockchain's full value potential. Keywords: blockchain, distributed ledger technology, business model, affordance, value, value creation, value capture

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There are several people and organisations without whom this dissertation would not have been possible. Firstly, I would like to express my sincere gratitude to my supervisor Dr Raluca Bunduchi for the continuous support of my postgraduate study and related research, for her patience, motivation, and immense knowledge. Her advice helped me during the entire research project of writing this dissertation. Besides, I want to thank my other lecturers Hajar Mozaffar, Joanna Young, Francis Greene, Alessandro Rosiello, Ben Spiegel, and Arno Verhoeven for the incredible experience of the recent study year in this master’s programme. I would also like to thank all the participants and supportive individuals who were involved in this study. Thank you for sharing your valuable experiences and insights which have contributed greatly towards the success of this dissertation. Furthermore, I want to thank my closest friends in Edinburgh: Mathilde, Rahul, and Aleks. Thank you for filling my year with laughter and happiness. Last but not the least, I would like to thank my family: my parents Claudia and Ulrich and my sister Sarah for supporting me spiritually throughout writing this thesis and my life in general.

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Introduction ......................................................1

Discussion ...................................................... 55

Literature Review ............................................4

The Influence Of Blockchain’s Affordances On The Value Creation Of Blockchain-Based Business Models............................................. 56

Business Models ...............................................5 Business Models In The Ecosystem Of Permissionless Blockchains ..............................9

The Influence Of Blockchain’s Affordances On The Value Capture Of Blockchain-Based Business Models............................................. 60

Value Creation And Value Capture In The Ecosystem Of Permissionless Blockchains ...... 14

The Influence Of Blockchain’s Affordances On Blockchain-Based Business Models In Regard To Traditional Business Model Theory .......... 64

Methodology ................................................... 21 The Ontological And Epistemological Philosophy ..................................................... 22

Conclusion ...................................................... 67

Inductive And Qualitative Approach ............. 22

References ...................................................... 75

Sample Selection And Data Collection ........... 23

Appendix ......................................................... 82

Data Analysis ................................................. 28 Limitations And Validity Of Findings ............ 31 Ethical Considerations................................... 31 Findings ........................................................... 33 Affordances Of Permissonless Blockchains .... 33 Value Creation And Value Capture With Blockchain-Based Business Models ................. 45 The Six Most Promising Blockchain-Based Business Models ............................................. 47

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Table 1: Business model definitions ................. 6 Table 2: Dimensions and elements of the Business Model Canvas ...................................................... 8 Table 3: Layers of blockchain-based business models................................................................ 11 Table 4: Typology of blockchain-based business models................................................................ 12 Table 5: Value creation with blockchain and related conflicts .................................................. 14 Table 6: Differences of value capture with the internet and blockchain ...................................... 16 Table 7: Overview list of respondents ................ 24 Table 8: Top 20 blockchain-based businesses according to market capitalisation....................... 25 Table 9: Selection of the six most promising blockchain-based business models ....................... 25 Table 10: Overview documents for documentary analysis............................................................... 27 Table 11: Aggregate dimensions, second-order themes, first-order categories .............................. 30 Table 12: Selection of the six most promising blockchain-based business models ....................... 47 Table 13: Layer-and-type combination for the six most promising blockchain-based business models .......................................................................... 55 Table 14: Glossary............................................ 85 Table 15: Overview of sources and their impact on the proposed framework ..................................... 87 Table 16 - 23: Data analysis of business models in the blockchain ecosystem framework .................. 88 Table 24: Aggregate dimensions, second-order themes, first-order categories .............................. 97 Table 25: Original categories and units ............. 98

Figure 1: The Business Model Canvas ............. 7 Figure 2: Business models in the blockchain ecosystem framework........................................ 13 Figure 3: Overview methodology................... 21 Figure 4: Inductive reasoning......................... 22 Figure 5: Multi-method qualitative study: triangulation ..................................................... 26 Figure 6: Overview constraints, potential solutions, and trade-offs .................................... 44 Figure 7: Business Model Canvas for the six most promising blockchain-based businesses ............ 52 Figure 8: Positive influence of blockchain’s affordances on the value creation of blockchainbased business models....................................... 59 Figure 9: Positive influence of blockchain’s affordances on the value capture of blockchainbased business models....................................... 63

BMC – Business Model Canvas DApp – Decentralised Application ICO – Initial Coin Offering

(?) Some blockchain terminologies in this dissertation have only emerged recently and go beyond common knowledge in business. These blockchain terminologies are labelled with a superscript blue question mark and their definition can be found in the glossary (Appendix 1).

V

Chapter 1

INTRODUCTION

6

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1

is created and captured. Assessed is a busi-

“Blockchain” (?) is a fast-growing in-

ness problem as opposed to theories as in

frastructural technology that is proposed to

traditional research dissertations. There-

innovate the ways in which people transact,

fore, the aim of this dissertation is to provide

trust, collaborate, organise and identify

a comprehensive understanding of block-

themselves (Elsden, et al., 2018). Also

chain’s affordances, value creation and cap-

known as “distributed ledger technology”, it

ture potential for blockchain-based business

promises a world without middleman

models.

(Gupta, 2017) and attracts the attention of multinational companies, entrepreneurs, and academics. Since its inception through “Bitcoin” ten years ago (Nakamoto, 2008) in-

On behalf of “Rublix Development Pte.

vestments in blockchain-based start-ups

Ltd.” (following Rublix) this dissertation fo-

worldwide increased rapidly to a total

cuses on the business case of blockchain and

amount of more than US$ 1 billion in 2017

follows the type of a company sponsored

(Statista, 2018). The hype of the technology

dissertation. Rublix is a Canadian “fintech”

is regarded as revolutionary but is contro-

start-up, founded in 2017 by CEO David

versially debated at the same time (Linuma,

Waslen and four other co-founders. The

2018). Current discussions about block-

young company is located in Singapore and

chain neglect its holistic affordance that is

supported by partners such as “Microsoft Biz-

still criticised as conceptually ambiguous

Spark”, “Blockstrat”, and “Singapore Fintech As-

(Jeffries, 2018). This obscurity affects start-

sociation”. Rublix employs eleven people in

ups and their ability to plan and develop a

order to develop blockchain-based systems

successful business model around the tech-

designed to assist the financial trading mar-

nology. This dissertation contributes to the

ketplace. To be precise, the company devel-

technology’s discussion and focuses on the

ops a suite of blockchain-based software

business case of blockchain and how value

programs 1

for

exchanging

financial

Chapter 1 – Introduction

information related to trading. This suite in-

most efficiently.

cludes two different solutions at the present

In order to answer to the business

time; the first solution is a “decentralised appli-

problem, three sub-research questions, an

cation” (?) (DApp), called “Hedge”, providing

objective, and a recommendation are pro-

a tamperproof marketplace for trade pre-

posed for further investigation.

dictions. The second solution is considerably more complex than the first one and in-

Business problem to be addressed:

cludes the development of an own “permis-

Understanding the affordances of permis-

sionless blockchain” (?) network and protocol.

sionless blockchains: value creation and

The “Rublix Blockchain” will provide a dis-

capture potential for blockchain-based busi-

tributed ledger database on which financial

ness models

data is stored, providing an interesting platform for investors, traders, market profes-

Sub-research question 1:

sionals

How are the affordances of permissionless

and

developers

(Rublix

blockchains influence the value creation of

Development Pte. Ltd., 2017).

blockchain-based business models?

Both of Rublix’s approaches require a differentiated view in planning and building every single business model. A clear un-


derstanding of blockchain’s affordances is


advantageous in order to create and capture

blockchains influence the value capture of

value with blockchain-based business mod-

blockchain-based business models?

els. This dissertation gives advice on how to make sense of blockchain’s affordances in


the context of both value creation and cap-


ture. For this purpose, blockchain-based

blockchains

business models that provide a permission-

business models in regard to traditional

less (also known as public) blockchain are

business model theory?

compared. “Permissioned blockchains”

(?)

influence

blockchain-based

(or

private blockchains) are not considered.

Aim and recommendation:

The business model comparison reveals de-

What business model strategy can be ap-

tailed patterns of value creation and cap-

plied to take advantage of opportunities,

ture, highlighting how blockchain’s oppor-

overcome constraints, and create and cap-

tunities are seized to handle constraints

ture blockchain's full value potential? 2


findings include an elaborate overview of The business problem, research

blockchain’s characteristics, including op-

questions, and objective will be addressed

portunities, constraints, and potential solu-

through reviewing current literature, in-

tions, as well as a comparison of six block-

cluding models and frameworks on business

chain-based business models. The findings

models, value creation and capture mecha-

allow a profound discussion on value crea-

nisms, as well as business models in the eco-

tion and value capture mechanisms with

system of permissionless blockchains. This

blockchain-based businesses, closing with

builds the basis for an exploratory research

an assessment on the applicability of tradi-

composed of documentary analysis (second-

tional business model theory on blockchain-

ary data) and semi-structured interviews

based businesses in the ecosystem of permis-

with blockchain experts (primary data). The

sionless blockchains.

3


Chapter 2

LITERATURE REVIEW

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2

This chapter provides an overview

The digital economy yields novel

and understanding of the existing literature

forms of business models and value creation

including models and frameworks around

mechanisms (Zott & Amit, 2009). Capturing

business models, business models in block-

value from innovation requires managers to

chain, and value creation and value capture

not only understand the technology, but

in the “blockchain ecosystem” (?). Reviewed lit-

also how to place it in the context of the

erature, hence, explains what academic

firm's capabilities, resources and overall

findings already exist, especially regarding

strategy (Sirmon, et al., 2007). As the focus

business models in the blockchain ecosys-

of this dissertation is to investigate amongst

tem of permissionless blockchains and how

other things, the similarities and differences

value can be created and captured. Based

of various blockchain-based business mod-

on these results, this dissertation includes

els and their handling with blockchain's op-

and distinguishes the objectives from previ-

portunities and constraints, it needs to be

ous findings in the relevant fields, in order

defined what a business model is and what

to address the business problem adequately.

its purpose is.

The study begins with a review of the theory

The term “business model” has risen in

relating to business models, followed by a

use over the last two decades (Zott, et al.,

particular focus on the “Business Model Can-

2010) but so has the number of definitions

vas” (Osterwalder & Pigneur, 2010). Sec-

and their diversity (Zott, et al., 2011). Table

ondly, a study of business models in the

1 provides an overview and summarises the

blockchain ecosystem is undertaken, high-

most adopted definitions (Page 6).

lighting the technology’s core features. Lastly, it is analysed how value is created and captured through business models in the ecosystem of permissionless blockchains. 5

Chapter 2 – Literature Review

Table 1: Business model definitions RESEARCHER

BUSINESS MODEL DEFINITION

Magretta (2002)

A story that explains how an enterprise works.

Petrovic et al. (2001) Auer & Follack (2002)

A description of the logic of a "business system" for creating value that lies behind the actual processes.

Jutla, Bodorik, Wang, (1999)

The business model determines processes and transactions. (i.e. business process- retail [external, internal], procurement, transaction- buy, payment registration etc.)

Applegate (2001)

A description of a complex business that enables study of its structure, the relationships among structural elements, and how it will respond to the real world.

Timmers (1998)

An architecture for the product, service and information flows, including a description of the various business actors and their roles; a description of the potential benefits for the various business actors; and descriptions of sources of revenues.

Morris et al. (2005)

A concise representation of how an interrelated set of decision variables in the areas of venture strategy, architecture, and economics are addressed to create sustainable competitive advantage in defined markets.

Weill & Vitale (2001)

A description of the roles and relationships among a firm's consumers, customers, allies and suppliers that identifies the major flows of product, information, and money, and the major benefits to participants

Hawkins (2001)

A description of the commercial relationship between a business enterprise and the products and/or services it provides in the market. More specifically, it is a way of structuring various, cost and revenue streams such that a business becomes viable, usually in the sense of being able to sustain itself on the basis of the income it generates. A business model is about the invention of new value proposi-

Tapscott et al. (2000)

Osterwalder & Pigneur (2002)

tions that transform the rules of competition and mobilize people and resources to unprecedented levels of performance. A description of the value a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, in order to generate profitable and sustainable revenues streams.

Table 1: Business model definitions

Therefore, the efforts to define a

definite conclusion has not been reached. In

business model are progressing, although a

this 6

context,

several

business

model


frameworks have evolved as a tool to ana-

Model Canvas” is demonstrated in Figure 1

lyse and communicate business models

and selected over the others for different

among different stakeholders and to medi-

reasons, described as follows (Osterwalder

ate between (1) idea / technology and

& Pigneur, 2010). Strengths of the “Business

(2) economic value / potential customers

Model Canvas” (BMC) are the visual repre-

(Chesbrough & Rosenbloom, 2002; Zott, et

sentation, the coverage of different dimen-

al., 2011).

sions, and the centrality of value. It is a com-

Examples of such business model

mon tool in the work with clients and proves

frameworks are the “Business Model Canvas”,

to be the most adopted choice in business. It

“Lean Canvas”, “Plan Cruncher”, “Fluidminds

gives business practitioners the opportunity

Business Model Canvas”, “IBM’s Component

to understand, manage, analyse, prospect,

Business Modelling”, or “The Value Model Can-

patent, and share a business better

vas”. Osterwalder’s approach, the “Business

(Osterwalder & Pigneur, 2010).

Figure 1: The Business Model Canvas (Instructables, 2015)

Similar to Morris et al’s. (2005) approach

structure the building blocks of the BMC

Osterwalder and Pigneur (2010) structure

are outlined on Page 8 and 9.

the business model concept by defining key elements, dividing the framework into four dimensions or nine standardised building blocks on which every business model can be based (Page 8: Table 2). Based on this 7


Table 2: Dimensions and elements of the

perceived as useful. Channels describe the

Business Model Canvas

way how a business interacts with their cus-

DIMENSION

BUILDING BLOCKS

Value

Value Proposition

Architecture of the relation between firm and exchange partner

Key Partners, Customer Relationship, Customer Segment, Channels

What the firm is doing

Key Activities, Key Resources

Financial Aspects

Cost Structure, Revenue Streams

tomers and include everything from attracting the attention to the product or service, to distribution channels and delivery and after-sales services. Depending on the offer, customers expect a certain kind of service and contact. This should be clearly defined and is part of the Customer Relationships. A strategic partnership with Key Partners, such as other market participants, suppliers, or service providers, can be

Table 2: Dimensions and elements of the Business Model Canvas

beneficial to reduce risk, costs, or resources.

The Value Proposition is in the

This building block is essential for value cre-

centre of the framework. Every business

ation since the network partners comple-

committed itself to solve certain problems of

ment the firm’s resources (Zott, et al., 2010).

their customers or to satisfy their needs.

Especially young business models often rely

This commitment is called the value propo-

on certain Key Resources to market the

sition. If the value proposition does not meet

value proposition, as the infrastructure is

this promise, a company will not survive for

still in its infancy. In order to realise the

long which makes the customer the most

value proposition and overcome the busi-

important factor of a company. The value

ness’ challenges, certain Key Activities are

proposition is designed for a specific Cus-

necessary. These are “…the most important

tomer Segment, which is defined as:

things a company must do to make its business model

“...different groups of people or organizations an or-

work” (Osterwalder & Pigneur, 2010, p.37).

ganization aims to reach and serve” (Osterwalder & Pigneur,

The objective of a commercial business is to

2010, p.20). Every business

capture value and to make profit (unless the

model needs a specific target group or is at

business is a non-profit organisation). This

least looking for market segments that ben-

is conceptualised in the building block Rev-

efit greatly from their product or service. A

enue Streams and “...represents the cash a

customer segment that is too broadly de-

company generates from each Customer Segment”

signed will be followed by an unfocused

(Osterwalder & Pigneur, 2010, p.30). Creat-

value proposition which will not be

ing and capturing value creates costs, 8


especially for key activities, key resources,

important for businesses but is no guarantee

and key partnerships. The Cost Structure

to success as the technology per se has no

“...describes all costs incurred to operate a business

inherent value. Therefore, the technology

model” (Osterwalder & Pigneur, 2010, p. 40).

has to be put into innovative and attractive

Limitations of the BMC include the

products and services as a part of

ignorance of external factors such as com-

a unique and viable business model

petitions, imitation and market. Moreover,

(LilianaDoganova

human and team interaction, as well as the

Renault,

strategic purpose, the mission, and vision of

Chesbrough, 2007b). In conclusion, the

a company is not considered (Coes, 2014).

firm’s ability to utilise novel technologies

However, designing and visualising business

and to create innovative business models

models by means of the BMC and its build-

may be an important source of competitive

ing blocks provides a clear understanding of

advantage (Chesbrough, 2010; Baden-

the company’s key elements. Being aware of

Fuller & Haefliger, 2013). Hence, it is im-

these dimensions is fundamental, as compa-

portant to understand how new technolo-

nies need to develop new, effective business

gies like blockchain can affect business mod-

models to create and capture superior value

els and to clarify the types of applications

(Prahalad & Hamel, 2000; Morris, et al.,

that will appear.

2009;

&

MarieEyquem-

Chesbrough,

2007a;

2005). The tool offers the opportunity to commercialise innovative ideas and technologies successfully by implementing the key elements efficiently (Chesbrough & Rosenbloom, 2002). Consequently, firms can compete through their business models whereas the business model represents a po-

In the past decade, blockchain tech-

tential source of competitive advantage (Casadesus-Masanell

&

Ricart,

nology has developed rapidly and reached a

2010;

level where it has the potential to radically

Markides & Charitou, 2004). New business

overhaul existing business models (Probst, et

models can unlock innovative potentials ei-

al., 2016). On the downside, due to the

ther through the business model itself or by

rapid speed of development, fundamental

commercialising undiscovered new technol-

structural work was neglected and block-

ogies (Zott, et al., 2011; Chesbrough &

chain’s affordances remain unclear. The

Rosenbloom, 2002). A new technology is 9


concept of affordances is used to define the

(1) “distributed ledger architecture”, (2) “consensus

opportunities and constraints for actions

algorithms”, and (3)

and characterise the relationship between

(Elsden, et al., 2018). (1) A distributed ledger

the technology and an actor (Robey, et al.,

is a database architecture shared between

2013). Many authors have utilised the con-

multiple actors who communicate “peer-to-

ceptual tool in order to study novel technol-

peer” (?) (Wirdum, 2016; Elsden, et al., 2018).

ogies while recognising the social context

(2) The consensus algorithm is part of a

(Fayard & Weeks, 2014). In this research,

“blockchain’s protocol”

the affordances of permissionless block-

verification of transactions through trustless

chains include characteristics such as op-

actors in the network. Over time various

portunities and constraints, considering the

consensus rules evolved to achieve the most

social context in which business models cre-

efficient and secure shared consensus about

ate and capture value with the innovative

the state of the database (Wirdum, 2016;

technology.

Xiao, 2016; Elsden, et al., 2018). The pro-

(?)

“immutable storage”

and facilitates the

It is important to mention that the

cess that incentivizes parties to maintain the

field of blockchain is undertheorized and re-

consensus and add “blocks” (?) to the ledger

lated literature is very scarce. As a conse-

is called “mining” (?) (Xiao, 2016). (3) The last

quence, a common understanding of busi-

feature, immutable storage, is subject to the

ness models, value creation, and value cap-

mechanism of storing data in blocks and

ture with blockchain is almost non-existent

connecting them through a “chain” (?). Each

and in the majority of cases business models

“node” (?) in the network maintains the chain

are only covered as a small part of a wider

and must relate to previous blocks in order

discussion on blockchain. The chapter con-

to provide an immutable history (Xiao,

sists of a review of eight relevant papers and

2016; Elsden, et al., 2018).

describes the business models that appear in

These features build the basis for

the blockchain ecosystem. It incorporates

every business model in the ecosystem of

agreements and disagreements of the au-

permissionless blockchains and facilitate the

thors and provides a holistic overview of

formation of blockchain-based business

blockchain’s core features, business models,

models as well as blockchain-related busi-

and application cases.

ness models.

Starting with blockchain’s core fea-

Blockchain-based business models

tures it can be broadly distinguished be-

utilise the technology and its key features as

tween

an integral part of their business model.

three

powerful

technologies: 10


Their value proposition is distinguished

application cases, and regarded as part of an

through two major determinants; layer and

interrelated stack. The higher stacks are en-

type. Every blockchain-based business

abled or supported through the subjacent

model is a combination of layer and type.

layers (see Table 3).

Blockchain’s first business model has ap-

The typology of blockchain-based

peared through Nakamoto’s Bitcoin proto-

business models is classified in seven appli-

col ten years ago (Nakamoto, 2008) and rep-

cation cases and can be regarded as the sec-

resents a combination of network and protocol

tor in which the business model operates

solution (layer) and currency (type).

(Page 12: Table 4).

The layers are clear segregations of development types, divided into four Table 3: Layers of blockchain-based business models LAYER

VALUE PROPOSITION

EXAMPLES

Decentralised applications, customer Applications

interaction, business logic, and user interface design ↑↑↑

Services and Application Frameworks

OmiseGo, CryptoKitties, Dogecoin, EtherTweet

supports ↑ ↑ ↑

Services to enable operation of appli-

Smart Contracts, Oracles,

cation and connection to other tech-

Clients, Wallets, Digital

nologies

Identity ↑↑↑

enables ↑ ↑ ↑

Network and Pro-

Base protocols, method of consensus,

Bitcoin, Ethereum, Stellar,

tocol Solutions

sidechains

Neo ↑↑↑

enables ↑ ↑ ↑

Infrastructure to operate the nodes,

The internet, Genesis Min-

Data and Infra-

computers, storages, network, virtual-

ing, Quantum Network, Az-

structure Providers

isation, mining-as-a-service, block-

ure Blockchain Service (Mi-

chain-as-a-service

crosoft)

Table 3: Layers of blockchain-based business models (adopted by Elsden, et al., 2018; Wirdum, 2016; Xiao, 2016; Rückeshäuser, 2017; BlockchainHub, 2017; Deloitte Touche Tohmatsu India LLP, 2017; Filippi, 2018)

11


Table 4: Typology of blockchain-based business models TYPE

VALUE PROPOSITION

EXAMPLES

Currency

Payment services, internal currencies

Bitcoin, Dash, Kin

Digital rights management, copyright and ticketing services

Creative Chain, Aventus

Financial Services

Asset management, investment trading, and crowdfunding

OpenLedger, Swarmfund

Platform

Generic, decentralized application eco-

Ethereum, Blockstack,

systems, Internet of Things architecture

IOTA

Governance

Voting services, distributed autonomous organisations

Followmyvote, Backfeed Crowdjury

Proof-as-a-service

Notaries, registers and attestation, supply-chain management

Chronicled, Everledger

Self-sovereign digital identity, and authentication

Civic, Blockchain, Helix, Bitnation

Property and Ownership

Identity Management

Table 4: Typology of blockchain-based business models (adopted by Elsden, et al., 2018; Olleros & Zhegu, 2016)

The layer-and-type combination covers

incubators, investors, or simply consultancy

most of the business models in the block-

firms that operate in this area. They help

chain ecosystem. The blockchain-related

blockchain-based start-ups by providing

business models close the remaining gap

venture capital, management training, of-

and are distinguished into “Supporting or Sup-

fice space, and so on. Furthermore, they are

plementing Service Provider” and “Development

specialised in originating and launching

related-business

open blockchain-based decentralised sys-

models support blockchain-based business

tems that can operate without the support

models and are different in the way of how

of trusted parties (e.g. “StringLab”). Develop-

their business model integrates blockchain.

ment Facilitators specialise only on the (code)

The technology is not used to build own

development of blockchain-based solutions

blockchain-based business models but to

(e.g. “MultiChain”) (Rückeshäuser, 2017).

Facilitators”.

Blockchain

provide services that include the financing

The review of eight different papers

and development of such. Distinguished

about business models in the blockchain

into two sub-categories, Supporting or Supple-

ecosystem and blockchain’s technology

menting Service Providers are venture studios,

stack resulted in an understanding that 12


allows the development of the researcher’s

inductively and gives a detailed impact of

framework (see Figure 2) that incorporates

each

source

on

the

framework.

agreements and disagreements of the au-

The framework is supposed to cover

thors and provides a holistic overview of

all possible business models in the ecosystem

blockchain’s features, business models, and

of permissionless blockchains and serves as

application cases. Appendix 2 demonstrates

a basis for the later discussion of this disser-

how

tation.

this

framework

was

composed

Figure 2: Business models in the blockchain ecosystem framework

13


intermediaries, it becomes exponentially more valuable with more users (Probst, et al., 2016; Olsen, 2015). The attributes of network effect, brand strength, and efficient operations are likely to affect each other, since all three are indicators for high quality and good service. In the field of blockchain,

Creating value refers to the creation

efficient operations are the main concern in

of use value of a product or service that may

order to create superior value. Most block-

or may not yield added exchange value

chain-based businesses are partly working

(Bowman & Ambrosini, 2000). In practice,

on the development of more efficient oper-

value creation for customers can be en-

ations as an approach to overcome the tech-

hanced through network effects, brand

nology’s constraints in scalability (Lee,

strengths, and efficient operations (Olsen,

2017). It is clear that scalability constraints

2015). Since blockchain’s main purpose is to

are in imbalance with value creation (see

connect people peer-to-peer and provide

Table 5).

more efficient services through cutting

NUMBER OF USERS High

Low

↓ ↓ ↓ Impact on ↓ ↓ ↓

Table 5: Value creation with blockchain and related conflicts NETWORK EFFECT

BRAND STRENGTH

EFFICIENT OPERATIONS (Scalability constraint)

Positive

Positive

Negative

Negative

Negative

Positive

Table 5: Value creation with blockchain and related conflicts

In traditional economy, companies acquire

called diseconomies of scale (Robinson,

economies of scale through an increasing

2018).

number of customers / users but this is not

As a result, a serious contradiction to

true to the case in the ecosystem of block-

the development of a mainstream block-

chain. Too many users weigh down the net-

chain becomes apparent, as scaling is a fun-

work and transaction times which leads to

damental requirement for the development

highly uneconomical transaction fees –

of a dominant design (Abernathy & 14


Utterback, 1978). This leads to the first sub-

since Bruhkman (2017) does not support

research question:

this view and states that the value of appli-


cations is not passed on to the network and

How are the affordances of permissionless block-

protocol layer as straight as stated by Mone-

chains influence the value creation of blockchain-

gro (2016). The competition between net-

based business models?

work and protocol solutions is not comparable to the internet as TCP/IP had only one

Only a few papers consider value

major competitor but the number of block-

capture with blockchain. Monegro (2016)

chain-based business models, in the layer of

talks in his paper about capturing value

network and protocol solutions, are un-

through investments in blockchain. He de-

countable and interlinked (e.g. through

fines that:

“sidechains” (?)) (Brukhman, 2017). Furthermore, a critical point of view

“value concentrates at the shared protocol layer and

to the definition of value capture in the con-

only a fraction of that value is distributed along at

text of blockchain has to be undertaken.

the applications layer. It [blockchain] is a stack with

Capturing value refers to the firm’s acquire-

fat protocols and thin applications” (Monegro,

ment of exchange value. In other words,

2016).

value is captured, once a firm has received This means, as opposed to the

the purchase price for their product or ser-

“World Wide Web” where applications such

vice from the customer (Bowman &

as “Google”, “Facebook” etc. capture the high-

Ambrosini, 2000). This includes the mone-

est value and inevitable protocols such as

tisation of users and efficient pricing (Olsen,

“TCP/IP” (?) or “HTTP” (?) capture almost

2015) but this is exactly what blockchain

no value, blockchain’s protocols comprise

aims to wipe out through cutting intermedi-

the highest value and DApps the lowest

aries; particularly DApps that are supposed

(Monegro, 2016). On that basis, many in-

to function entirely autonomous. As a result,

vestors derive the strategy that an invest-

for value capture, it can be differentiated be-

ment in an “application token” (?) is subject to

tween value capture through monetising us-

a 95% (start-up) failure rate, whereas an in-

ers and value capture through investments.

vestment in a “protocol token” (?) diversifies the

Table 6 demonstrates a comparison of value

risk across all DApps that are built on that

capture with the internet towards value cap-

protocol (Brukhman, 2017). However, the

ture with blockchain (Page 16).

matter remains controversial and unclear 15


Table 6: Differences of value capture with the internet and blockchain INTERNET LAYER ↓ Application Layer

BLOCKCHAIN

VALUE CAPTURED THROUGH MONETISING USERS

VALUE CAPTURED THROUGH INVESTMENTS

VALUE CAPTURED THROUGH MONETISING USERS

VALUE CAPTURED THROUGH INVESTMENTS

High

High

Low

Low

Low

Low

Low

High

Services and Application frameworks Network and Protocol Solutions Data and Infrastructure Providers

Table 6: Differences of value capture with the internet and blockchain

In addition, a quick excurse into “collabora-

(Rappa, 2001; Rivette & Kline, 2000) but

tive entrepreneurship” is deployed as necessary.

nevertheless,

Collaborative entrepreneurship is a similar

make the deliberate decision to not use cop-

concept to “open innovation” (Chesbrough,

yright law and renounce to protect value

2003; Miles, et al., 2006) and finds applica-

creation and capture mechanisms (Sims,

tion for many blockchain-based business

2018). Core supporters of blockchain back

models. Accessible and transparent “white-

collaborative entrepreneurship and go even

papers” (?) or “open-source developments” (?) sup-

further by rejecting and criticising value

port the exchange of information and shar-

capture in general, as the traditional gener-

ing of knowledge which results in jointly

ation of profit often includes a variable of

generated ideas. In fact, people are free to

centralisation. This leads to the second sub-

copy the code and improve upon it

research question:

blockchain

entrepreneurs

(“fork” (?)). Depending on the extent, this is


either called a “soft fork” (?) or a “hard fork” (?)


and happened to “Ether Classic” or “Bitcoin

chains influence the value capture of blockchain-

Cash” (Sims, 2018). The business model it-

based business models?

self could become an intellectual property 16


As a result, some business models in the eco-

relevant literature resulted in creating the

system of permissionless blockchains can

researcher’s framework that approaches to

appear rather ineligible for Osterwalder’s

mediate a comprehensible overview of busi-

and Pigneur’s (2002) definition of a business

ness models in the blockchain ecosystem.

model (Page 6: Table 1) and it has to be clar-

Based on the three core technology features

ified if fundamental attributes of business

of blockchain (distributed ledger, consensus

model theory changed through the impact

algorithm, immutable storage), blockchain-

of blockchain. This leads to the third sub-

based or blockchain-related business mod-

research question:

els are built on top. Blockchain-based busi-


ness models are a rather complex combina-


tion of layer and type. Blockchain-related

chains influence blockchain-based business mod-

business models support blockchain-based

els in regard to traditional business model theory?

business models and therefore, stimulate the ecosystem. Furthermore, the literature review showed that value creation and value

The literature review has shown that

capture is a contentious issue. It could not

the business model in its current stage is not

be clearly identified which blockchain-

only one concept but comprises of many

based business model builds the basis for ex-

ones. Nevertheless, similarities and patterns

tensive value creation and capture. Indeed,

can be derived through the literature; busi-

the review revealed some insights that open

ness models are the organisational and fi-

a discussion with deeper significance: it has

nancial architecture of a company – the

to be clarified if fundamental attributes of

concept can be divided into four dimensions

business model theory changed through the

of (1) value, (2) relation between firm and

impact of blockchain, as the technology

exchange partners, (3) business related ac-

yields novel forms of business models, value

tivities, and (4) financial aspects. The Busi-

creation and value capture mechanisms

ness Model Canvas by Osterwalder and

(Zott & Amit, 2009). In conclusion, it could

Pigneur (2010) covers these dimensions by

be shown that blockchain’s development is

providing a framework that represents a

moving forward rapidly. The number and

company’s architecture visually and cen-

diversity of market participants is sophisti-

tralises the importance of value. Subse-

cated and businesses contribute diligently

quently, understanding and summarising

towards an improvement of the technology. The end goal is not reached yet and affects 17


blockchain’s affordances that remain unclear to some extent.

In order to answer to the business problem, three sub-research questions, an objective, and a recommendation are proposed for further investigation.

Understanding the affordances of permissionless blockchains: value creation and capture potential for blockchain-based business models

How are the affordances of permissionless blockchains influence the value creation of blockchain-based business models?

How are the affordances of permissionless blockchains influence the value capture of blockchain-based business models?

How are the affordances of permissionless blockchains influence blockchain-based business models in regard to traditional business model theory?

What business model strategy can be applied to take advantage of opportunities, overcome constraints, and create and capture blockchain's full value potential?

18


19


Chapter 3

METHODOLOGY

20

-

3

strategy chosen for this research, as well as

The aim of this research is to pro-

methods of data collection and analysis. Ad-

vide an understanding of the affordances of

ditionally, potential limitations, and ethical

permissionless blockchains and to identify

considerations are discussed. Figure 3 pro-

how blockchain-based business models cre-

vides an overview of the present study’s

ate and capture maximum value. This

methodology.

chapter introduces the research design and Phase 1

Phase 2

Figure 3: Overview methodology

21

Chapter 3 - Methodology

Regarding the explorative nature of blockchain, the study required an inductive Considering that the research is con-

approach (Goddard & Melville, 2004). The

cerned with blockchain’s affordances, value

observation of business models in the block-

creation, and value capture mechanisms, it

chain ecosystem facilitated abstract general-

addresses a very unexplored field of re-

isations and ideas. Thus, the study gener-

search. The limited data hinders the objec-

ated an answer to the business problem by

tivity of an independent reality. Considering

bottom-up reasoning (see Figure 4).

this, the ontology for this research is concerned about the experience of individuals with blockchain – a subjectivism view was

Data collection

taken. Following the theme of social con-

Identify patterns

Draw conclusions

structivism, the research adopted an interpretivist epistemology in exploring the

Figure 4: Inductive reasoning (adapted from Lodico, et al.,

emerging field of blockchain technology.

2010)

This paradigm argues that our knowledge of reality is a social construction by human ac-

With the field of this innovation in

tors (Morgan & Burrell, 1979). Therefore,

its infancy, there is not much past data to

interpretivists bring an understanding of

extrapolate from and, apart from that, qual-

blockchain within their own environment,

itative methods can be more capable of

from their own point of view, and with a

grasping the complexity of blockchain

great level of depth (Saunders, et al., 2007).

(Saunders, et al., 2007). It was used to un-

Furthermore, the study was subject of a

derstand the underlying reasons, opinions,

three months’ time constraint which pre-

and motivations of blockchain (Neuman,

vented the conduction of a research over a

2003). The approach facilitated the devel-

longer period of time. Hence, this disserta-

opment of a conceptual framework that de-

tion follows a cross-sectional exploratory

scribes value creation and value capture in

approach, and analysed blockchain’s af-

the context of the affordances of permission-

fordances and blockchain-based business

less blockchains.

models (multiple case study analysis) at a single-point in time. 22

Chapter 3 - Methodology digitally recoded, transcribed and coded under agreement with the respondents. Interviews with blockchain experts led to valid To address the business problem

and reliable data that is relevant to the ad-

and to answer the research questions, this

dressed business problem as well as the re-

study triangulated multiple sources of qual-

search questions. The interviews were con-

itative data. Therefore, the mode of analysis

ducted in a semi-structured manner, to al-

is a multi-method qualitative study. The

low room for flexibility where further infor-

process of data collection was divided into

mation was needed (Saunders, et al., 2007).

two phases as presented in Figure 3 and de-

With the acquired knowledge through con-

scribed as follows.

ducting the literature review a reasonable set of broad questions could be established as listed below. Interview Guide

Phase 1 consists of a triangulation of

Value creation and value capture: “How do

two data sources, in order to determine the

business models in the ecosystem of permis-

six most promising blockchain-based busi-

sionless blockchains create and capture

ness models. In this context, “most promising”

value?”

is related to the perceived highest value cre-

Blockchain-based businesses: “Based on

ation and capture potential. Selection crite-

your experience - what are the most prom-

ria were primary insights through (1) expert

ising business models in the ecosystem of

interviews as well as the (2) value of market

permissionless blockchains?”

capitalisation.

Blockchain affordances: “Can you describe

1) Expert Interviews:

blockchain’s key characteristics and how

The expert interviews provided val-

they present opportunities and constraints

uable information and were used for Phase

in the context of the aforementioned busi-

1 and Phase 2. The experts were classified

ness models?”

into two categories and either have profes-

Business model components: “How can

sional experience in the blockchain ecosys-


tem and/or published research in this

tem take advantage of these opportunities?”

space. Overall, thirteen semi-structured in-

Business model components: “How

terviews were conducted via Skype or

can


phone, lasting between 20 – 45 minutes in

tem overcome constraints?”

length (Page 24: Table 7). All of them were

23

Chapter 3 - Methodology Table 7: Overview list of respondents COMPANY

INDUSTRY

ROLE IN THE COMPANY

INTERVIEW DATE

INTERVIEW LENGTH

INTERVIEWEE

Category 1: professional experience in the blockchain ecosystem DWF Germany

Multinational law firm

Partner

26th June 2018

45 minutes

INTERVIEWEE A

BTC-ECHO

Information portal for cryptocurrencies and blockchain

CEO

03rd July 2018

30 minutes

INTERVIEWEE B

Futerio.com

The Europe - Asia Blockchain Hub

CEO

06th July 2018

30 minutes

INTERVIEWEE D

TechGDPR

Helps tech-centric companies to become GDPR compliant.

CEO

11th July 2018

30 minutes

INTERVIEWEE E

Bitwala

Global blockchainbased payment service provider

BDM

20th July 2018

35 minutes

INTERVIEWEE F

for cryptocurrencies and blockchain

Editor and Educator

20th July 2018

40 minutes

INTERVIEWEE G

Develop, maintain and evaluate

Blockchain Educator

35

INTER-

blockchain related products

and Developer

minutes

VIEWEE I

Information portal BTC-ECHO

Blockchain consulting

27th July 2018

Consulting comKI decentralized Deloitte Blockchain Institute BlockchainExpert UK

pany for Blockchain Centre of competency for blockchain technology Develop and deliver blockchain re-

CEO

28th July 2018

25 minutes

INTERVIEWEE K

Partner

02nd August 2018

25 minutes

INTERVIEWEE L

Consultant

02nd August 2018

20 minutes

INTERVIEWEE M

lated projects Category 2: published research in this space

Hasso-Plattner Institute for Security National University of Singapore Imperial College London

Identity Lab Blockchain

PhD Researcher

05th July 2018

35 minutes

INTERVIEWEE C

School of Computing

PhD Researcher

26th July 2018

30 minutes

INTERVIEWEE H

35

INTER-

minutes

VIEWEE J

System Security

PhD Researcher

Table 7: Overview list of respondents

24

28th July 2018

Chapter 3 - Methodology Table 8: Top 20 blockchain-based busi-

2) Value of market capitalisation:

nesses according to market capitalisation:

The second set of data that was used to select the six most promising blockchain-

1. Bitcoin

11. TRON

based business models was the value of mar-

2. Ethereum

12. Moneto

ket capitalisation. For this purpose, the top

3. XRP

13. Ethereum Classic

100 blockchains were compared through

4. Bitcoin Cash

14. NEO

their value in market capitalisation data

5. EOS

15. Dash

(measured in August 2018). The market

6. Stellar

16. Binance Coin

capitalisation

at

7. Litecoin

17. NEM

https://coinmarketcap.com and represents

8. Cardano

18. Tezos

the total USD value of cryptocurrency sup-

9. IOTA

19. Zcash

ply in circulation, as calculated by the daily

10. Tether

20. OmiseGo

data

was

found

average market price across major exchanges. This led to an evaluation of the top

Table 8: Top 20 blockchain-based businesses according to market capitalisation

20 blockchain-based businesses according to market capitalisation as presented in Table 8 (CoinMarketCap, 2018). Selection of the six most promising blockchain-based business models: A result of Phase 1 could be formed after comparing and validating the interview data with the market capitalisation data. This led to a selection of the six most promising blockchain-based business models as presented in Table 9.

Table 9: Selection of the six most promising blockchain-based business models: MARKET CAPITALISATION IN BILLION USD (JULY 2018)

NUMBER OF RESPONDENTS SUPPORTING THIS BLOCKCHAIN

RANK

Bitcoin

117.53

5

1

Ethereum

47.64

8

2

EOS

7.73

4

3

Stellar

3.98

3

4

NEM

1.78

3

5

2

6

NAME

Dash 1.98 Table 9: Selection of the six most promising blockchain-based business models

25

Chapter 3 - Methodology main advantage of using secondary data was the enormous saving in resources, in particular time and money (Ghauri &

This outcome allowed Phase 2 to

Grønhaug, 2005). Furthermore, secondary

begin. Phase 2 addresses the business prob-

data provided better in-depth insights.

lem and attempts to answer the sub-re-

However, it has to be mentioned that due to

search questions. The triangulation of

the undertheorized nature of blockchain,

Phase 2 consists of expert interviews, and

secondary data sources are partly lacking of

two different types of documentation analy-

high quality. The primary data provided

sis as demonstrated in Figure 5. The expert

data of higher quality but a more generic

interviews are presented above and were

horizon scan of the ecosystem and block-

also used to provide the primary data for

chain’s affordances, as the young technol-

Phase 2. The secondary documentary data

ogy is very complex to describe.

collection triangulated the findings and furthermore, provided a profound basis for an

triangulation

elaborate comparison of the six blockchainwere broadly categorised into two different types of documents: (1) documents that were published by the selection of blockchainbased business models and (2) documents

EX PE Blo RT IN ckc hai TERV ne xpe IEWS rts

SIS LY a NA dat Y A on AR ati NT alis ME pit CU t ca DO arke M

Selection of the five blockchainbased business models

based business models. The documents

Phase 1

DOCUMENTARY ANALYSIS Published by the selection of blockchainbased-based business models

about blockchain that were published by inappropriate documents for the first category, the results of Phase 1 were required. Documents of for the first category mainly consist of whitepapers and other publica-

Phase 2

EX PE RT B

SI S LY t NA den Y A en AR dep NT y in ns ME d b atio CU he nis DO ublis orga P

Address business problem and answer to research questions

loc IN kch TE ain RV exp IEW er t S s

triangulation

dependent organisations. In order to select

tions from the six most promising blockFigure 5: Multi-method qualitative study: triangulation

chain-based business models. The second category includes independent documents such as articles, community documents, and video transcripts. Table 10 (Page 27) lists the documents that were analysed and coded in order to provide valid results. Considering the time constraint of three months, the 26


Table 10: Overview documents for documentary analysis DOCUMENT

CATEGORY

TYPE

SOURCE

Document A

Business model components

Video transcript

Matt Lockyer

Document B


Document

Vizologi

Document C


Document

Vizologi

Document D

Blockchain affordances

Article

Jimmy Song

Document E


Article

Preethi Kasireddy

Document F


Article

Preethi Kasireddy

Document G

Business model components: general (Dash)

Video transcript

Aimstone

Document H

Business model components: general (EOS)

Video transcript

Aimstone

Document I

Business model components: general (Ethereum)

Video transcript

Vitalik Buterin

Document J

Business model components: general (NEM)

Video transcript

Aimstone

Document K

Business model components: general (Stellar)

Video transcript

Aimstone

Document L

Business model components: general (Bitcoin)

Article

Marc Andressen

Document M

Business model components: value proposition (Dash)

Whitepaper

Dash

Document N

Business model components: value proposition (EOS)

Whitepaper

EOS

Document O

Business model components: value proposition (Ethereum)

Whitepaper

Ethereum

Document P

Business model components: value proposition (NEM)

Whitepaper

NEM

Document Q

Business model components: value proposition (Stellar)

Whitepaper

Stellar

Document R

Business model components: value proposition (Bitcoin)

Whitepaper

Bitcoin

Document S

Business model components: partnerships (Ethereum)

Website

Ethereum

Document T

Business model components: partnerships (NEM)

Website

NEM

Document U

Business model components: partnerships (Stellar)

Website

Stellar

Document V

Business model components: partnerships (Bitcoin)

Website

Bitcoin

Document W

Business model components: extra (Stellar)

Website

Stellar

Document X

Most promising blockchain-based business models

Website

Coinmarketcap

Table 10: Overview documents for documentary analysis

27

Chapter 3 - Methodology Transcription method An exemplary transcript with coding can be found in Appendix 6. All tran-

The literature review provided

scripts and documents can be found in Ap-

much information in order to build dimen-

pendix 7. The process of analysing the semi-

sions and themes prior to the multi-method qualitative data collection. The codes were

structured interviews and the videos from

part of a coherent set, related to the objec-

secondary data began with listening to the audio/video recordings and transcribing

tives of this dissertation, providing a well-

audio into text format. A complete tran-

structured analytical framework. However,

scription was carried out for most data

the data collection resulted in many new themes and categories (not dimensions).

sources, but not all could be transcribed en-

Hence, the iterative approach resulted in a

tirely due to the time-consuming process of transcription. The audio/video files were

final set of aggregate dimensions, second-or-

heard over repeatedly and several detailed

der themes, and first-order categories as

notes and part transcription were taken

provided in Appendix 4. The original list of

down (Fisher, 2007).

codes can be found in Appendix 5.

Coding method

The results of primary and secondary data were transcribed and coded in or-

In the context of King’s (2004) pro-

der to provide an emergent structure and

posed template analysis (Saunders, et al.,

compare and analyse blockchain-based

2007), words or sentences that resulted from

business models by means of a multiple case

the transcription were broken down to the

study strategy. Table 11 (Page 29) provides

codes and assigned to the themes and aggre-

an overview of each theme accompanied by

gate dimensions. In order to code the tran-

an explanation and an exemplary quote.

scripts and documents, the NVIVO software was used as a supportive tool, as data was very complex. This process revealed patterns and relationships between the categories and enabled the development of testable propositions.

28

Chapter 3 - Methodology Table 11: Aggregate dimensions, second-order themes, first-order categories DIMENSIONS

Sub-category 1: Blockchain-based business models (Phase 1)

SECOND-ORDER THEMES

à Blockchain-based business models with most promising concept

à Neutral

(Neutral characteristics of blockchain)

à Opportunities

(Characteristics of blockchain that enable and improve the value creation and capture potential) à Constraints Dimension 1: Blockchain affordances (Phase 2)

(Characteristics of blockchain that limit and restrict the value creation and capture potential) à Regulations

(Rules that are employed in order to control, direct, and manage activities of (blockchain) organisations) à Solutions and trade-offs

(Answers suggested or implemented to try and solve the constraints, substituting one priority for another)

EXEMPLARY QUOTE “As of today: definitely Ethereum. It is the biggest Ecosystem out there. It has so many developers. Much more than any other blockchain that I am aware of. So as of today, it is the best blockchain to build further applications on.” (Interviewee I) “In Blockchain, for example, you have the protocol that is defined; that blocks and transactions must have a certain form, and then there is a program that actually creates blocks, sends transactions, sends blocks - back and forth.” (Interviewee C) “I think the biggest promise of blockchain is the inherit trust where people know they can trust the technology and don’t need to trust anybody. This requires not only the blockchain to be secure but also all the steps in-between until the layers of applications – everything needs to be reliable and secure.” (Interviewee I) “If you look at challenges then scalability is definitely one of the big things. Blockchain by itself is like a very slow and inefficient way of doing things so what is happening right now is people looking for solutions to make it actual usable for both: in enterprise and in public environments.” (Interviewee E) “The GDPR covers everyone who is in Europe. So, if your blockchain includes anyone in Europe, it generally applies and could therefore, be by the European union either banned, sued or worse. Even if data is processed in Europe it is a problem and it is very hard to avoid everything.” (Interviewee E) “Later they will also start with sharding. Sharding basically means that they divide their network into different families and you can scale the network by grouping the nodes. These nodes work with parts of a private network called byzantine fault tolerance consensus protocols.” (Interviewee H)

29

Chapter 3 - Methodology DIMENSIONS

Dimension 2: Business model components (Phase 2)

SECOND-ORDER THEMES

à Value proposition

“Dash aims to be the most user-friendly and scalable payments-focused cryptocurrency in the world. The Dash network features instant transaction confirmation, double spend protection, anonymity equal to that of physical cash, a self-governing, self-funding model driven by incentivized full nodes and a clear roadmap for onchain scaling to up to 400MB blocks using custom-developed open-source hardware.” (Document M)

à Key partners

“Community members (owners and stakeholders), developers, donors, contributions from great minds across the globe, IT community, and wallets” (Document B)

à Customer relationship

“Radical transparency, design and issue your own cryptocurrency, automation, self-service, cocreation community” (Document B)

à Customer segment

“IT Community, developers, cryptocurrency community, enterprise software companies” (Document B)

à Channels

“Website, social network, developer tools, ATMs” (Document B)

à Key activities

“R&D, software development, community, bugs, operations, maintenance, testing” (Document B)

à Key resources

“Open-source, design is public, community, miners” (Document C)

à Cost structure

“Web maintenance, legal, events and conferences, IT systems, cybersecurity” (Document C)

à Revenue streams

“Low processing fee, charge transaction fee” (Document C)

(Described in the literature review)

Dimension 3: Value creation and capture (Phase 2)

(Described in the literature review)

EXEMPLARY QUOTE

à Value creation mechanisms

à Value capture mechanisms

“When I look at value creation and capture mechanisms with public blockchains I think that most public blockchains try to create value but not capture value. As aforementioned I believe that the most value can be captured in the application layer even though the whole system of blockchain is not designed to capture value.” (Interviewee I)

Table 11: Aggregate dimensions, second-order themes, first-order categories

30

Chapter 3 - Methodology dissertation is on business models and not on technical details of blockchain, the new technology requires a considerable understanding of technical details in order to un-

Although the research methodology

derstand its application in business. This in-

and strategy were chosen carefully, limita-

terrelation had to be balanced in a reasona-

tions must be acknowledged. First of all, the

ble manner so that the predominant atten-

qualitative data is criticized for being highly

tion is on business without neglecting tech-

subjective as the data collection and analysis

nical circumstances.

rely on the research subjectivisms (Borman, et al., 1986). In other words, the respondents were biased by their own way of implementing and working with blockchain. In addition, they have a vested interest in push-

Ethical considerations include a

ing blockchain forward which could poten-

straightforward human interaction at level

tially fed in the results. This limitation is ex-

one (non-interaction) and level 2 (engage-

tended by limited resources; the time and fi-

ment with participants). An informed con-

nancial constraints only allow a rather small

sent (Appendix 3) was provided to the par-

number of interviews which downgrades

ticipants, giving information on the nature

the statistical variance and only allowed a

of the study and the confidentially terms.

snapshot of blockchain’s value creation and

Consequently, ethical measures had to be

capture instead of an analysis of value crea-

taken to protect both participants and the

tion and capture over a longer period of

researcher. Therefore, the privacy of possi-

time. Furthermore, given the limited re-

ble and actual participants was ensured and

sources, no representatives of the six most

held anonymously at every stage of the re-

promising blockchain-based business mod-

search. The nature of participation was vol-

els could be interviewed. As a result, the

untary throughout the whole process. In ad-

“second hand” experts only allowed results in

dition, the research was conducted and pub-

less detail. However, the documentary qual-

lished during the entire process without

itative data provided data with great detail

harming research participants in any way.

and the triangulation is supposed to outweigh the subjectivism of qualitative data. Finally, it has to be mentioned that the technical understanding of the researcher was a limitation. Even though, the focus of this 31


Chapter 4

FINDINGS

32

-

4 This section provides the findings

Three interviewees emphasised on

from the data collection. The data will be

blockchain’s rapid development saying that

presented by aggregate dimensions, discuss-

the number of participants that contribute

ing the underlying second-order themes and

and research in the field of blockchain is

first-order categories. Firstly, this section

enormous and businesses as well as aca-

presents

permissionless

demia develop the technology so rapidly

blockchains regarding characteristics, op-

that new approaches become outdated on a

portunities, constraints, and more. Sec-

monthly basis. In this context, it is im-

ondly, the section will look at how value is

portant to acknowledge that all findings are

created and captured in the context of

a snapshot of a data collection that was con-

blockchain. Thirdly, the section presents

ducted in the Second Quarter of 2018.

affordances

of

and compares the six most promising business models and their components.

The concept of affordances is used to define the neutral characteristics, opportunities, and constraints of the technology regarding business aspects and the relationship between blockchain and the user.

technology that have to be existent in order to allow the technology to be fully funcDuring the process of data collec-

tional. In line with the literature review, the

tion, a set of neutral characteristics of block-

data collection showed a clear focus on

chain emerged. These neutral characteris-

three technical features of blockchain that

tics represent the key features of the

influence the affordances. The data sources 33

Chapter 4 - Findings defined blockchain as a technology that

Open-source development is one op-

concatenates records into blocks and pub-

portunity that impacts the entire ecosystem

lishes them across a distributed ledger.

of permissionless blockchains and facilitates

Each blockchain has an individual consen-

the aforementioned rapid development.

sus algorithm which determines how new

Four interviewees emphasised on the token

blocks are created and verified by the net-

economy that is created through the digi-

work (e.g. “miners” (?) or “validators” (?)). This

talisation. Tokens(?) are divided into three

facilitates a trustless peer-to-peer network

different categories, starting with the most

and an immutable storage. These indis-

common one which is utilised for payments

pensable key features are neutral and only

on the blockchain; called the “security token”.

represent the parameters in which a range

The second category are “utility tokens” and

of different applications are possible. The

implemented in order to make certain ser-

parameters can be adjusted according to the

vices available such as the creation of a de-

context and intended purpose of blockchain

centralised applications on top of a network

in the business. in which a range of different

protocol. The third type is the “equity token”

applications are possible. The next section

and comparable to traditional company

discusses the positive impacts resulting from

shares with voting rights. In order to enable

the key features of blockchain.

the token economy, so called smart contracts(?) are implemented. Smart contracts were mentioned in most of the data sources

The data collection revealed many

as an important characteristic of block-

implications of the technology of which

chain, representing an opportunity for

some represent promising opportunities.

many cases. Combining the technological key

The first aggregation of opportunities co-

features (distributed ledger, consensus algo-

vers technological phenomenon and includes open-source development, token

rithm, immutable storage) with the techno-

economies, and smart contracts. The sec-

logical phenomena (open-source, token

ond paragraph summarises the findings in

economy, smart contracts) a series of benefits emerge, described as follows. As a main

respect to general benefits, facilitated

opportunity, pointed out by almost all data

through the key features and technological

sources, these key features allow the cutting

phenomenon. The third part of the opportunities gives an overview of the industries

of intermediaries. Therefore, blockchain

that are affected positively by blockchain.

technology facilitates a decentralisation that connects users peer-to-peer. 34

Chapter 4 - Findings “Looking at decentralisation over a longer period of

(IPO) and “crowdfunding” and is (financially)

time it started decades ago with a car driver who de-

strongly supported by the blockchain com-

cided to establish a taxi company. This concept de-

munity.

veloped and digitalisation enabled more decentralisation even before blockchain. Now there is Uber.

“[…] and probably for the first time in history, a

Uber offers the service but does not own a car. So,

young technology does not suffer from lack of

the customer who is looking for a taxi, and the service

money.” (Interviewee A)

provider who is driving the car, are only matched together. […] This last entity that matches you with

Other benefits were, for the most part, iden-

the other party is resolved by blockchain.” (Inter-

tified through the documentary analysis and

viewee H)

are listed below:

Due to the replacement of trusted interme-

Opportunities and benefits of permission-

diaries, the technology affords this trust.

less blockchains:

This was underlined as the major benefit by

o o o •

almost all data sources. “The entire economy, every business, needs some level

• • •

of trust. Banks, hotels etc. you need some level of trust. Blockchain enables a service where trust is provided by a program and customers do not need to worry about these aspects.” (Interviewee H)

• • • •

Another opportunity, especially supported through the token economy is related to the funding of blockchain-based businesses.

Open-source and free configuration Token economy Smart contracts Cutting intermediaries and providing trust New ways of funding Increase efficiency and reduce costs Ease of payment across national borders Data security and immutability Solve income inequality Political neutrality Authenticity

Furthermore, the interviewees underlined

Three interviewees emphasised particularly

the industry potential with regards to block-

on this big opportunity that blockchain of-

chain’s opportunities. Following industries

fers for entrepreneurs. By means of the to-

or application cases can potentially gain

kens it is possible to receive funding for

maximum benefits from the technology, as

blockchain businesses by individuals from

presented on the next page.

all over the world. This is called an “initial coin offering” (?) (ICO). This funding mechanism is similar to an “initial public offering” 35

Chapter 4 - Findings Industries and application cases with the po-

above, the indispensable key features of

tentially highest benefit through blockchain

blockchain are distributed ledger, consensus

technology:

algorithms, and immutable storage, repre-

• • • • • •

senting the parameters in which a range of

Decentralised financial exchanges Prediction markets Asset management Logistics industry Real estate industry Self-sovereign identities

different applications are possible. In this section, poorly conceived applications are implied, in order to underline the constraints that arise through the infancy of permissionless blockchains.

Implemented successfully, blockchain provides many opportunities as described

1) Scalability

above. However, the opportunities do not

When it comes to the technology’s limita-

apply for all business cases because block-

tions there is apart from many, one that is

chain is often misapplied or the context re-

standing out: scalability. All interviewees

quires better solutions to constraints. For in-

and most documents underlined this partic-

stance, competing with businesses such as

ular constraint.

“Uber” requires blockchain technology being capable of handling tens of millions of

“If you are making lots and lots of reads and writes

active daily users. Such an application is at

to the blockchain, a lot of notifications and uploading

present not feasible due to constraints that

data very, very quickly you are going to run into prob-

are described in the next section.

lems very, very soon.” (Interviewee J) Whereas many nodes increase the network’s security they also aggravate inter-node la-

The data collection in regard to con-

tency. As the blocks have to be propagated

straints was very fruitful and revealed clear

throughout the whole network, high inter-

results. An interesting observation is that

action rates create bottlenecks that lead to

most interviewees preferred to talk about

large fees and limited computational capac-

the constraints rather than about the oppor-

ity that prevent widespread blockchain

tunities, saying that generally speaking, cur-

adoption.

rent blockchains promise a lot but most of the time, it does not work as well as ex-

2) Storage

pected. This chapter aims to clarify the

Some interviewees underlined that the con-

reasons for failure by aggregating the con-

catenation and distribution of blocks lead to

straints into nine categories. As mentioned 36

Chapter 4 - Findings storage constraints – particular under high

programmability which appears to be chal-

interaction circumstances. Therefore, most

lenging in this early stage of the technology.

applications that get built on a permissionless blockchain will require a storage solu-

“Developing a functional protocol or decentralized

tion.

application on the blockchain is a daunting task even for today’s most seasoned developers.” (Document F)

3) Governance The next striking constraint that was found in almost all data collection sources is the

In addition, only mentioned occasionally,

lack of governance and standards.

blockchain’s interoperability represents another challenge, as the possibilities to con-

“A public, decentralized blockchain has no central

nect blockchains with other blockchains or

authority or organization making decisions. […]

with related software are nearly non-exist-

Blockchain governance is an incredibly tricky prob-

ent.

lem and finding a balance between centralized and distributed control will be key to keeping development

These barriers in programmability and in-

on the right path.” (Document F)

teroperability point out a very fundamental core issue – security. As mentioned in the

The interviewees agreed that at the end of

section of opportunities, the main benefit of

the day, even a decentralised network needs

blockchain is trust. Since the technology af-

some direction and management in order to

fords this element of trust for almost all

grow and develop. If blockchain aims to

other promises, it underlies the condition:

achieve widespread adoption by established companies, some implementation of gov-

“Trust requires not only the blockchain to be secure

ernance is essential.

but also all the steps in-between until the layers of applications – everything needs to be reliable secure.” (Interviewee I)

“If you don't have a good form of governance, if you don't have good people behind it, everything sort of breaks down very, very quickly.” (Interviewee J)

Documents and Interviewees agreed that the promise of trust also means that com-

4) Programmability and interopera-

plete security and faultless soft- and hard-

bility

ware are required. Complicated program-

The next concern that was raised by many

mability and interoperability set this prom-

data sources is linked to blockchain’s

ise into danger. 37

Chapter 4 - Findings The constraint is a big problem regarding 5) Human capital

data protection laws such as the European

The last factor that currently constraints

GDPR. Not only that blockchain’s data en-

blockchain-based business models is human

cryption lacks in privacy protection, the

capital. Due to the recency of blockchain

data is also stored on an immutable distrib-

technology, blockchain developers are

uted ledger across an indefinite number of

scarce which is aggravated through the

nodes – forever. Stronger methods of en-

complicated programmability of blockchain

cryption could potentially solve the issue but

software. However, a blockchain requires

interviewee J criticised this approach, stat-

human capital for all kinds of responsibili-

ing that even the most complex encryption

ties. From back end development to front

technologies could be broken in the future

end; and not only coders but also designers,

through the use of quantum computing.

business developers, and much more. This requires the development of a large and

7) Misapplication

strong community which is also another

Some interviewees concluded that the rea-

challenging process.

soning behind some constraints, such as the scalability, is a kind of misapplication of the technology. But even irrespective to the

6) Privacy and encryption identified

aforementioned constraints, misapplication

through the majority of interviews, is linked

was mentioned often, underlining that

to privacy.

many people do not really look at what

Another

constraint,

mainly

blockchain is actually providing. “The transactions are recorded and stored in a public ledger, but they are linked to an account address

The whole notion of decentralization is great but if

comprised solely of numbers and letters. With no

your use case doesn't require decentralization, you're

real-world identity attached to this address, the

over complicating your system for no benefit. […]

transaction’s originator seems impossible to track.

Great, your data is stored on a blockchain and is

However, this appearance of total security is mis-

replicated across thousands of machines. But what

leading. It’s true that a person can preserve his or her

benefit does that actually give your users, what ben-

privacy as long as the pseudonym is not linked to the

efit does it give you?” (Interviewee J)

individual, but as soon as somebody makes the connection, the secret is revealed.” (Document F)

38

Chapter 4 - Findings The interviewees brought out that the understanding of how the regulations apply to Although the handling of regula-

blockchain is still very vague and especially

tions in the context of blockchain is compli-

for companies that offer their service world-

cated and might be perceived as constrain-

wide, this is an extraordinarily difficult situ-

ing at this stage, interviewees agreed that

ation, because they have to be compliant in

the regulations also bear promising poten-

every market in which they offer their ser-

tial. An elaborate overview of the findings

vice or digital unit. It does not matter if the

related to regulations is given in this next

regulatory level is extremely low where the

section.

company is located. In addition, by virtue of

The data collection underlined that

the technology’s infancy, it is unknown how

many people think blockchain is a means to

these regulations look like.

get rid of the heavy apparatus of government regulation, but in fact it doesn’t magi-

“These companies but also, we as a major multina-

cally take away human conflict. Many inter-

tional law firm, are unable to actually cover all the

viewees emphasised on the importance of

jurisdictions of nearly 200 countries, and to develop

regulations for blockchain-based businesses

a token that is assured to be allowed.” (Inter-

but only two provided in depth information.

viewee A)

Blockchain-based businesses that enter the market have nearly in all cases

Running a business in the field of permis-

points of contact to regulatory issues. In

sionless blockchains will most likely lead to

those cases, blockchain-related questions

a lot of work around compliance which can

need to be answered such as:

be very challenging to handle for a small

• • • • • •

Where in the world is the business offering the service? Which legal form does the company have? How is the company’s token designed? Is the company a registered business at the regulatory authority? How does the business comply to anti-money laundering laws? How is personal data protected?

start-up, reported an interviewee that already made this experience. Furthermore, the potential consequences were highlighted; the company’s management becomes subject of criminal proceedings if they are active on markets where they mistreat legal foundations. This applies to all financial regulations but also to personal data laws:

39

Chapter 4 - Findings “The GDPR covers everyone who is in Europe. So,

day, are very important to build the re-

if your blockchain includes anyone in Europe, it gen-

quired trust.

erally applies and could therefore, be by the European Union either banned, sued, or worse.” (Interviewee E) It is very challenging for businesses to be

The findings revealed that there are

compliant in the field of blockchain and to

a variety of potential solutions to the afore-

deal with the regulations but if the manage-

mentioned constraints. An adjustment of

ment does not pursue to violate any laws,

the parameters of the indispensable key fea-

the business has only two choices: (1) avoid

tures allows to withdraw the majority of

the legal restrictions through offering differ-

constraints. However, many of these solu-

ent services or looking for a loophole, or (2)

tions are only presumptions that have not

enforcing and maintaining compliance in

been field tested yet and involve different

every country their service is offered. Both

trade-offs; typically, between security and

approaches require high (financial) re-

control.

sources and might decrease the funding potential as it might be not feasible to offer the

1) Scalability

ICO tokens to the whole world.

The first potential solution to overcome

However, even if regulations might

scalability limitations is the modification of

be perceived as constraints, these rules are

the blockchain’s consensus algorithm. The

necessary to enable a functioning market.

different modes of consensus algorithms are

Even if regulations are constraining the

uncountable but the two major ones that

blockchain economy to some extent, the in-

stand out are proof-of-work and proof-of-

terviewees endorse the implementation of

stake. This finding was backed by the vast

regulations. Data protection laws are im-

majority of data sources.

portant and once financial regulations are

Proof-of-work has been field-tested

clear and set in the field of blockchain, ma-

trough bitcoin during the past decade and is

jor financial firms will start to invest in the

integral part of the most disseminated

technology’s ecosystem. Once there is a

blockchain world-wide. However, the con-

commercial solution for investing in block-

sensus algorithm has its drawbacks. The

chain it is expected to see an immense finan-

process of validating and creating blocks

cial upsurge. Therefore, the regulations in-

consumes high resources of energy. Moreo-

herit a huge potential and at the end of the

ver, in case of bitcoin, so called mining40

Chapter 4 - Findings pools were developed, controlling the net-

with proof-of-work. On the downside, trust

work though superior hardware. This devel-

is reduced in off-chain solutions as not every

opment is criticised, as it creates an element

interaction is recorded on the distributed

of centralisation and therefore, worsens the

ledger.

blockchain’s security regarding immutable

The third potential solution was

storage through decentralisation. Further-

proposed by half of the data sources and is

more, the consensus algorithm itself re-

an approach that initially derived from cen-

mains rather cumbersome and not scalable

tralised database optimisation: “sharding” (?).

unless other features of the blockchain are

Hereby, scalability is provided by dividing

adjusted.

the network into subgroups that follow a hi-

The second most common mode of

erarchical structure in which the leaders

consensus is proof-of-stake. According to

agree on a consensus with each other. Data

the interviews the consensus algorithm

sources presented this approach as promis-

could replace proof-of-work entirely and

ing but also mentioned that the blockchain

carries the highest potential in order to cope

community is generally against hierarchies

with the constraints. However, the consen-

and any form of centralisation.

sus algorithm has not been field-tested yet

The last solution for increasing the

for a longer period of time and neither with

scalability is a rather simple one and was

high number of users. It remains unproven

mentioned by almost all data sources. Ad-

if novel consensus algorithms can meet the

justing the block size of the blockchain can

current expectations.

re-expand the bottleneck and leads to a

The second potential solution to

maximised

information

throughput.

overcome scalability limitations is the im-

Whereas Bitcoin has a fixed block size,

plementation of off-chain channels. One

other blockchains use a dynamic model

particular method that was underlined in

which allows unlimited block sizes. The

this context by many data sources was the

trade-off for this solution is that decentral-

“Lightning Network”. It is Bitcoins approach to

ised network structures become more cen-

build a decentralised second layer network

tralised as not every full node across the

that uses state channels via smart contracts

globe has a sufficient bandwidth to down-

to enable instant and scalable payments

load, process, and mine the entire block-

across a network of participants. This does

chain. Therefore, certain groups are ex-

not require every interaction with the soft-

cluded which is against the ideology of

ware to be recorded on the main blockchain

blockchain’s fundamentals. Furthermore, a

and therefore, increases scalability – even

belated adjustment of the block size is no 41

Chapter 4 - Findings longer possible without restrictions. Bitcoin

that these examples cannot be the final so-

would have to create a hard fork as the

lution for governance; concluding that the

block size is defined in the network’s proto-

required rules and structures are yet to be

col.

discovered. Finally, the pressing question is how

promising are the scalability solutions?

4) Programmability and interoperability

“The truth of the matter is that unfortunately, none

The data sources highlighted the constraints

of the solutions provide the silver bullet answer to

of programmability and interoperability but

scalability. In reality, each one of these solutions will

only one interviewee gave an example of

help improve scalability incrementally. Combined to-

who is currently working on an interopera-

gether, there’s a promising outlook for the future of

bility solution. The “Quant network” aims to

blockchain scalability.” (Document E)

connect the world's blockchain networks. Any potential solutions to the programming

2) Storage

constraints were not further discussed in any

One approach to cope with the storage con-

data source leaving the question about com-

straints that was mentioned in the inter-

plete security unresolved.

views several times is “segregated witness”. A process in which insignificant information

5) Human capital

of the blocks is removed in order to free up

Only three interviewees provided infor-

space on the chain, which increases the ca-

mation on how to deal with human capital

pacity to add more data.

constraints in the context of blockchain. Two emphasised on how important a large

3) Governance

and strong community is. Therefore, it is in-

The majority of data sources underlined

dispensable to interact with the community

that some mode of centralised authority is

through online channels, meet ups, etc.

required in order to provide the network with guidance and although the decentrali-

“If you draw from the community, you should also

sation is the pillar of blockchain’s trust

give something back to the community. And if you're

mode, it appears necessary to include this el-

offering some sort of value to the community, then the

ement of governance. Examples that were

right people come back to you in order to work on

mentioned are the “Bitcoin Foundation” or

your projects. That is how you find the groups with

thought leaders like Vitalik Buterin (CEO

whom you can build blockchain projects together.”

“Ethereum”). Nevertheless, it was criticised

(Interviewee K) 42

Chapter 4 - Findings

The third interviewee, a PhD student who

7) Misapplication

researches trusted computing and distrib-

Last but not least, businesses should not in-

uted protocols, is close to the blockchain

tegrate blockchain in their business model if

ecosystem and mentioned three main fac-

an implementation does not lead to more

tors that influence a programmer’s em-

value for the business and the customer. As

ployer choice: salary, vision, and team, say-

shown above, blockchains opportunities

ing that salary is the least important of all

should provide a scope of what applications

three.

make sense in this context – mainly considering the marginalisation of middlemen.

6) Privacy and encryption

However, several data sources strongly em-

In order to cope with blockchain’s data mis-

phasised that it is useless to apply traditional

use, the interviewees provided two potential

business models on the blockchain and ex-

solutions, in order to secure privacy. Firstly,

pect equivalent value capture. Especially, in

the so called “ring signature”. An encryption

regard to the constraints in scalability, many

method that is implemented by “Monero”

businesses might rethink their application of

and allows the network to approve transac-

blockchain:

tions without exposing who was part of it. Another solution to the constraint of privacy

“In a sense, current conceptions of blockchain are

are “zero-knowledge-proofs” or also called

trying to do the impossible. They want the security

“fraud proofs”, which are mathematically or

of a decentralized system with the control of a cen-

programmatically included in certain proto-

tralized one. The desire is the best of both worlds,

cols. The methods allow to approve trans-

but what they end up getting is the worst of both

actions without revealing anything except if

worlds. You get the costs and difficulty of a decen-

the quality is true or false. However, the

tralized system with the failure modes of a central-

trade-off for increasing the privacy also re-

ized one.” (Document D)

duces the feasibility of tracing criminal activities. Decrypting the private data for legal

Figure 6 (Page 44) provides an overview of

reasons would require some implementa-

all constraints, possible solutions and related

tion of centralised authority, which leads

trade-offs.

back to limited governance capabilities. No data source provided any solution for the potential constraint that quantum computing could break encryption. 43


Figure 6: Overview constraints, potential solutions, and trade-offs

CONSTRAINTS

SOLUTIONS

TRADE-OFFS Unproven

New consensus algorithms Scalability

More centralised

Off-chain transactions

Reduced trust

Sharding

Hierarchies

Increase block size

More centralised

Storage

Segregated witness

-

Governance

Central authority

More centralised

Programmability and interoperability

Quant network

-

Human capital

Provide value to the communities and offer salary, vision, and team

Requires resources

Privacy and encryption

Zero-knowledge proof Ring signature

Misapplication

Research

Regulations

Avoid or be compliant

Tracing criminal activities becomes unfeasible

Figure 6: Overview constraints, potential solutions, and trade-offs

44

Requires resources Decreases funding


created and as a result, an indirect barter

Almost all participants referred to

economy is made possible. Based on that a

the opportunities presented above when

lot more applications, businesses and oppor-

talking about value creation; underlining

tunities can be built, creating more value on

that benefits are the foundation for every

top.

value creation and emphasising on the importance of cutting intermediaries, providing trust, offering open-source, and free usage as these are the pillars for widespread

The findings for value capture were

adoption.

extremely scarce as no interviewee or docu-

Furthermore, the majority of data

ment could provide a very fruitful mode of

sources underlined that the value creation of

value capture in the ecosystem of permis-

blockchain mainly proceeds on the network

sionless blockchains. Interviewee C de-

and protocol layer. Subsequently, the value

scribed how blockchain founders capture

passes the layers through back-end software

value. The founders ascribe themselves a

up to the application layer and the block-

certain number of tokens at the creation of

chain’s front-end - where users actually in-

the blockchain in the genesis block. If users

teract with the blockchain. Ideally, no value

eventually find value in the blockchain they

is getting lost during this process, for in-

will buy the tokens and demand emerges.

stance through poorly designed user inter-

Due to the increase in value the token be-

faces.

gins to form a price and value can be capOnly a few interviewees described

tured by the founders as they possess a cer-

the actual value creation as intrinsic to the

tain number of tokens from the genesis

blockchain. The technology enables trust in

block.

a secure network. In combination with the

However, further specific statements

scarcity of digital currencies, value is

to value capture were almost not existent

45

Chapter 4 - Findings and made value capture with blockchain look not very promising. “When I look at value creation and capture mechanisms with public blockchains I think that most public blockchains try to create value but not capture value. I believe that the most value can be captured in the application layer even though the whole system of blockchain is not designed to capture value.” (Interviewee I)

46


In order to analyse blockchains affordances in depth and to identify successful value creation and capture mechanisms, six blockchain-based business models were selected to be examined in detail. The selection process, as described in the methodology, revealed the following blockchain-based business models. Table 12: Selection of the six most promising blockchain-based business models

RANK 1

Bitcoin is a decentralised digital currency created under the name Satoshi Nakamoto and released as open-source software in 2009 (Bitcoin Wiki, 2018).

RANK 2

Ethereum is an open-source, public, blockchain-based distributed computing platform featuring smart contract (scripting) functionality (Bitcoin Wiki, 2018).

RANK 3

EOS coin is a cryptocurrency that introduces a blockchain architecture designed to enable vertical and horizontal scaling of decentralised applications (Bitcoin Wiki, 2018).

RANK 4

Stellar is a platform for foreign exchange transactions operating in real time with internal coin – Stellar Lumens (XLM) (Bitcoin Wiki, 2018).

RANK 5

NEM is a peer-to-peer blockchain platform for app developers. Its native cryptocurrency is the XEM (Bitcoin Wiki, 2018).

RANK 6

Dash is an open-source peer-to-peer cryptocurrency that aims to be the most user-friendly and most on-chain-scalable cryptocurrency in the world (Bitcoin Wiki, 2018).

Table 12: Selection of the six most promising blockchain-based business models

The following sections describe each element of the Business Model Canvas in detail referring to the selected cases of blockchain-based business models. It is important to note that almost all findings of the following sections were derived from the documentary analysis as the interviewees could not provide in depth insights for the business models.

47

Chapter 4 - Findings EOS is an Ethereum based token created by the start-up “Block.one” in 2017. The vision of the platform is the ability to handle a have

Bitcoin was the first decentralised

massive number of transactions, process

cryptocurrency in 2009 and has no central

payments differently, and provide tools

issuer; instead, the peer-to-peer network

which will help developers to create decen-

regulates Bitcoin’s transactions and issuance

tralised applications. EOS is a decentralised

according to consensus in the network. The

open-source platform with the use of dele-

consensus is maintained through the mining

gated proof-of-stake, designed to deploy

of nodes in the network, utilising the proof-

high performance blockchain applications

of-work function. The technology provides

based on smart contract technology.

a decentralised system that enables a new,

Stellar was founded in 2014 by Jed

fast way of peer-to-peer payment across the

McCaleb and Joyce Kim as a branch of the

globe with low processing fees. These payments can not only be used to execute a

“Ripple” system. The blockchain focuses on

money transfer but also to facilitate other

scalability and cryptocurrency cross-border

functions that rely on a distributed ledger.

payments. Stellar’s consensus protocol is a combination of proof-of-work, proof-of-

Ethereum was founded in late

stake, “byzantine agreement”, and “tendermint”,

2013 by Vitalik Buterin, a cryptocurrency

creating a unique mode of consensus that al-

researcher and programmer. Ethereum is a

lows users to have the freedom to trust any

platform specifically designed for people to

combinations of parties they see fit.

build decentralised applications, usually fo-

NEM was conceived in 2014 by the

cusing on the creation of financial applications that are fully trustworthy and trans-

pseudonymous “BitcoinTalk” user “Utopian-

parent because they run on the blockchain.

Future” and is a cryptocurrency designed for speed and scalability, not for secrecy, which

The blockchain-based business has a built-

is why it has been described as being a con-

in programming language, called “Solidity” that allows users to execute scripts using an

tender to “Visa”, “PayPal” and “Mastercard”

international network of public nodes. The

rather than a project for anonymity. The

current mode of consensus is proof-of-work

NEM blockchain uses an original consensus mechanism

but it is expected to see a switch to proof-of-

called

“proof-of-importance”.

Proof-of-importance is similar to proof-of-

stake in combination with sharding until

stake but there are more variables than a

2020.

specific amount of coins in order to become

48

Chapter 4 - Findings a validator such as the level of your net

customers that want to process fast peer-to-

transfers and cluster nodes.

peer payments across the globe. However,

Dash was created in 2014 by Evan

the adoption is not too advanced yet and the

Duffield and aims to be the most user-

offerings are for the most part from crypto-

friendly and scalable payments-focused

currency evangelists for cryptocurrency

cryptocurrency in the world. In order to

evangelists.

maintain the consensus and ensure scalabil-

In contrast, the customer focus of

ity, it implements a “two-tier network”

Ethereum and EOS is more on developers

wherein block-related functions are handled

and less on individuals. Nevertheless, simi-

by the miners through proof-of-work. Pay-

lar problems are observable for the two

ment-related functions are performed by so

blockchains, as only a few real problem-

called “masternodes” through “proof-of-service”.

solving applications are built on the applica-

All of the blockchain-based

tion platforms and have not reached mass adoption yet.

business models are decentralised and open-source. Four of the six (Bitcoin, Stel-

Regardless of the difficulties, cus-

lar, NEM, Dash) specialise on payments

tomer segments overlap and include mostly

through their own cryptocurrency whereas

the IT and cryptocurrency communities,

two (Ethereum, EOS) specialise more on

program developers, and enterprise soft-

their application platform. Cryptocurren-

ware companies.

cies aim to replace fiat currencies and traditional payment structures. Application platforms aim to build an environment for ap-

All blockchain-based businesses in-

plications that could potentially replace fa-

teract with their customers through similar

mous internet platforms such as “Facebook”,

channels, attracting the attention and dis-

“Twitter”, “AirBnB” or “Uber”.

tributing their offering by courtesy of their website, code repositories such as “GitHub”, social networks, and meetups. In addition,

Considering blockchain’s ambitious

Bitcoin, Ethereum, and Dash are available

goal to replace fiat currencies and internet

at around 3000 ATMs worldwide as of now.

giants, it only makes sense that as a result, every blockchain-based business model tries to reach mass adoption. With respect to this, the customer segments are not very specified. Bitcoin, Stellar, NEM, and Dash serve 49

Chapter 4 - Findings “J.P. Morgan”, “Thomson Reuters”, and many more. The findings revealed no specific partnerships for EOS. Stellar lists partnerUsually customers would expect a

ships on their website, including “IBM”,

certain kind of service or contact but tech-

“Deloitte”, “lightyear”, “wanxian blockchain

nically there is no central authority to main-

labs”, and many more. According to NEM’s

tain customer relationships. This is mainly

website, key partners include but are not

substituted through the decentralised nature

limited to “Tech Bureau Corp.”, “Dragonfly

of blockchain; everything is transparent and

Fintech”, and “Blockchain Global”. The find-

regulated through trust. Therefore, the

ings revealed no specific partnerships for

community is self-sufficient and communi-

Dash. Other generic key partners for

cates among each other.

blockchain-based businesses are community members, miners or validators, developers, donors, and wallets.

As mentioned above in the section of constraints, blockchains suffer through a lack of governance. As a result, the blockchain founders support the underlying busi-

All blockchain-based business mod-

ness models through a non-profit organisa-

els are open-source, public and everyone

tion in the background: in the case of

can take part. The first major key resource

Bitcoin this includes the “Bitcoin Foundation”

appears to be the blockchain technology it-

and the “Linux Foundation”. Ethereum is sup-

self but apart from that, the key partners

ported through the “Ethereum foundation”,

and especially the community play a crucial

EOS through the “EOS foundation”, Stellar

role in order to market the value proposi-

through the “Stellar foundation”, NEM

tion. Moreover, the interviewees underlined

through the “NEM foundation”, and last but

that full stack developers are very hard to

not least, Dash through the “Dash founda-

find and represent another key resource.

tion”. Moreover, according to Bitcoin’s Website, key partners of the cryptocurrency include “simplex”, “blockchair”, “world block-

The key activities are the same for

chain forum”, “Coingeek”, “BitcoinCash”, and

every blockchain-based business and in-

more. Ethereum’s key partners are part of

clude software development, operations and

the “Enterprise Ethereum Alliance” and include

maintenance, research and development,

companies such as “Microsoft”, “Accenture”, 50

Chapter 4 - Findings solving bugs, staying constantly in contact with the community, and taking care of legal issues. Interestingly, not all of the block-

The costs incurred by the block-

chain-based businesses listed all of the key

chain-based businesses are also generic and

activities on their website.

do not differ significantly from case to case. The costs include web maintenance, legal, events and conferences, IT systems and cybersecurity, software development, research

First of all, as mentioned in the op-

and development, hosting and bandwidth,

portunities, ICO funding created an easy

and hiring full stack developers.

way for start-ups to raise capital. As a result, many speculative and explorative business models have developed. Apart from that, the findings revealed that revenue streams

The following business model can-

in blockchain-based businesses are some-

vas (Page 52: Figure 7) provides an overview

thing out of the ordinary. The few income

of the key elements of each blockchain-

sources consist of low procession fees, trans-

based business described above. This was

action fees, and donations. In addition, the

summarised through all findings related to

founders usually assign themselves a certain

the blockchain-based business models.

amount of coins in the genesis block when they build the blockchain. This amount of coins increases in value during the years and suffices in order to cover all remaining costs. For example, Vitalik Buterin and Vladislav Martynov obtained a certain number of “Ether”

(?)

as they founded Ethereum in

2015. Since then, the value per Ether increased from zero to almost 1,500 USD per Ether

in

the

beginning

of

2018

(CoinMarketCap, 2018). Their contribution to the business was rewarded through an increase in investment value which is considered as substitute to a revenue stream.

51

52

●Stellar ●NEM ●DASH

IT Community ●●●●●● Cryptocurrency community ●●●●●● Community members ●●●●●● Developers ●●●●●● Enterprise software companies ●●●●●●

CUSTOMER SEGMENTS

Figure 2: Business model canvas for the six most promising blockchains

Figure 7: Business Model Canvas for the six most promising blockchain-based businesses

Low processing fee ●●●●●● Transaction fee ●●●●●● Donations ●●●●●● (Increase in value of own cryptocurrency) ●●●●●●

Software development ●●●●●● R&D ●●●●●● Hosting and bandwidth ●●●●●● Full stack developers ●●●●●●

Web maintenance ●●●●●● Legal ●●●●●● Events and conferences ●●●●●● IT systems and cybersecurity ●●●●●●

Website ●●●●●● GitHub ●●●●●● Social networks ●●●●●● Meet ups ●●●●●● ATMs ●●●

CHANNELS

Online ●●●●●● No central authority ●●●●●● Transparency ●●●●●● Trust ●●●●●● Self-sufficiency ●●●●●●

CUSTOMER RELATIONSHIP

REVENUE STREAMS

Technology ●●●●●● Community ●●●●●● Full stack developers ●●●●●●

Decentralized system ●●●●●● Open source and free ●●●●●● Fast and worldwide ●●●●●● Payment focus ●●●● Application platform ●● Smart contracts ●●●●● Scalability focus ○●●●● Proof-of-work ●●●● Proof-of-stake ○● Delegated proof-of-stake ● Proof-of-Importance ● Proof-of-Service ●

VALUE PROPOSITION

●Bitcoin ●Ethereum ●EOS

COST STRUCTURE

Others ●●●●●●

Software development ●●●●●● Bugs and Maintenance ●●●●●● Community ●●●●●● Legal ●●●●●● R&D ●●●●●●

Foundations ●●●●●● Miners or Validators ●●●●●● Community members ●●●●●● Developers ●●●●●● Donors ●●●●●● Wallets ●●●●●● KEY RESOURCES

KEY ACTIVITIES

KEY PARTNERS

BUSINESS MODEL CANVAS FOR THE SIX MOST PROMISING BLOCKCHAINS



The data findings revealed a sufficient vari-

for instance for the description of the six

ety of interesting information regarding the

most promising blockchain-based business

affordances of permissionless blockchains

models, whereas the interviews gave a ra-

and value creation and capture mechanisms

ther broad understanding of the technology.

of blockchain-based business models. The

However, the interviews also revealed valu-

comparison of the six most promising block-

able information that was primarily more

chain-based business models gave a more

focused on the business context of block-

in-depth insight into the actual application

chain such as the industry potential or solu-

of blockchain in the ecosystem. Considering

tions regarding regulations and human cap-

the context and mode of implementation,

ital. As a result, the data collection provided

neutral characteristic of blockchain can pre-

a clear picture of blockchain’s affordances,

sent opportunities or constraints. Generally

highlighting opportunities, constraints, and

speaking, documents focused more on tech-

potential solutions. The results in respect to

nical characteristics such as the benefits of

value creation and capture modes were dis-

blockchain’s solutions or most technology-

proportionate and are elaborated in greater

related constraints. Furthermore, the docu-

detail in the next chapter – discussion.

mentary analysis provided in-depth results,

53


Chapter 5

DISCUSSION

54

-

5 This chapter seeks to answer the re-

models. The third section reflects upon the

search questions by comparing the empiri-

influence of blockchain’s affordances on

cal findings from the fourth section to the

blockchain-based business models in regard

existing literature presented in the second

to traditional business model theory. To ad-

section. The sections are structured accord-

dress the business problem and underlying

ing to the three sub-research questions.

research questions, the chapter makes use of

Therefore, the first section discusses the in-

the framework developed in the literature

fluence of blockchain’s affordances on the

review, and categorises the six most promis-

value creation of blockchain-based business

ing blockchain-based business models ac-

models. The second section analyses the in-

cording to the proposed layer-and-type

fluence of blockchain’s affordances on the

combination (see Table 13).

value capture of blockchain-based business Table 13: Layer-and-type combination for the six most promising blockchain-based business models: Layer à Type â Currency

Data and Infrastructure Providers

Network and Protocol Solutions


Bitcoin, Stellar, NEM, Dash

Property & Ownership Financial Services Platform

Ethereum, EOS

Governance Proof-as-a-service Identity Management Table 13: Layer-and-type combination for the six most promising blockchain-based business models

55

Applications

Chapter 5 - Discussion

This section approaches to answer the first sub-research question: Sub-research question 1: “How are the affordances of permissionless blockchains influence the value creation of blockchain-based business models?”

to value creation. The data collection showed that open-source development is the root of rapid development in this field. The whole ecosystem of permissionless blockchains works on an open-source basis In accordance to the literature re-

and undisclosed corporate structures are

view the findings agreed that the three tech-

not even a choice which makes open-source

nological key features of blockchain are dis-

development an important element in order

tributed

to create value with blockchain.

ledger,

consensus

algo-

rithm, and immutable storage. These

Another opportunity presented in

features are the basis for every blockchain-

the findings is the token economy which

based business model and therefore, facili-

allows payments between users, provides

tate any value creation in the ecosystem of

certain services, or offers company shares

permissionless blockchains.

with voting rights. All three tokens opened up new horizons for businesses enabling un-

Furthermore, the literature review

explored possibilities of value creation.

revealed that open-source development finds application for many blockchain-

Last but not, least the findings un-

based business models, discussing that the

derlined that blockchain-based businesses

exchange of information and sharing of

should offer smart contracts in order to

knowledge results in jointly generated ideas.

create more value.

The literature review covered how this af-

Combining all elements trustless

fects value capture but not how it is linked

peer-to-peer transactions are enabled and value can be particularly created in 56

Chapter 5 - Discussion decentralised financial exchanges, predic-

potential solutions are more substantive

tion markets, asset management, logistics

than the constraints as value creation can be

industry, real estate industry, and self-sover-

positively

eign identities.

fordances are different but similar in a way

influenced.

Blockchain’s

af-

that no blockchain-based business has presented the complete solution to all constraints yet. In order to approach the potential solutions, as presented in the findings, the business has to perform actions that inThe literature review revealed that

crease the worth of goods. Hence, value is

value creation for users is enhanced through

created through human action – the find-

network effects, brand strength, and effi-

ings made it evident that the actions of es-

cient operations (Olsen, 2015). In regard to

tablished blockchain-based business are al-

blockchain it was underlined that too many

most entirely controlled by the community

interactions with the blockchain lead to dis-

as the current affordances do not allow a

economies of scale that have a negative im-

central leading governance. Thereafter,

pact on the value creation (Robinson, 2018).

value in blockchain-based businesses is not

The findings confirmed the literature re-

created by the firm but by the community –

view; adding further constraints to scala-

in other words “from users for users”. Never-

bility such as storage, governance,

theless, it must be remembered that block-

programmability and interoperabil-

chain-based businesses build a community

ity, human capital, privacy and en-

around their project over time. Therefore,

cryption, or misapplication. All con-

value creation is affected by the creators at

straints are critical factors for value creation

the blockchain’s forming stage. As a result,

given that network effects, brand strength,

potential solutions to the constraints have to

and efficient operations are all negatively in-

be applied by the founders in the first stage,

fluenced by the restrictions.

and subsequently by the community. Depending on the stage of the business, the decisive force has to evaluate if the trade-offs, as presented in the findings, are worth the benefits that are enabled through potential solutions.

In regard to the creation of value with

blockchain-based

businesses,

the 57

Chapter 5 - Discussion transmitted to the upper layers. Nevertheless, all layers within the blockchain stack are equally important to create valuable blockchain services as they are interlinked and inter-dependent.

The findings showed that all six of

After clarifying that the layer of net-

the most promising blockchain-based busi-

work and protocol solutions has the highest

ness models are auspicious by the way they

value creation potential, it needs to be as-

develop potential solutions to the con-

sessed how the different types influence the

straints, leading to more fruitful ways of

value creation model. First of all, interview-

value creation. Categorising the business

ees did not mention or not agree that a cer-

models in the framework as presented in

tain type (currency or platform) creates more

Table 13 shows a clear concentration of the

value than the other. They underlined

six most promising blockchain-based busi-

blockchain’s potential in certain industries

ness models at the layer of network and protocol

but most of the industries are equally linked

solutions. Furthermore, four of the six busi-

both types. Nevertheless, the blockchain-

nesses are from the type currency and two

based business models with a focus on appli-

from the type platform.

cation platforms also offer their own cur-

The literature review could not pro-

rency, and in the case of Ethereum, the cur-

vide any specific information on value crea-

rency is even available on a few thousand

tion regarding the layer-and-type combina-

ATMs worldwide. In addition, Ethereum

tion of permissionless blockchains due to the

was mentioned by almost every single inter-

unexplored nature of this field. The data

viewee as one of the most promising block-

collection showed that all six most promis-

chain-based business models which also

ing blockchain-based business models are at

strengthens the presumption that the most

the layer of network and protocol solutions.

value is created with a layer-and-type com-

It is evident that the layer where most of the

bination of (1) network and protocol solution and

value is created is an important factor for

(2) application platform (+ providing a currency).

blockchain-based businesses to be viewed as one of the most promising ones. In addition, the majority of data sources particularly underlined that the value creation of blockchain mainly proceeds on the network and protocol layer and that this value creation is

58

Chapter 5 - Discussion 1. Build the value proposition around the opportunities of open-source development, token economy, and smart contracts

In conclusion, as mentioned by many interviewees, the technical solutions

2. Increase the worth of goods together

still need to be developed, tested, and vali-

with the community. Therefore, it is

dated. Furthermore, blockchain’s social

indispensable to interact with the

context needs time to adjust to the technol-

community through online chan-

ogy and potential solutions. This will lead to

nels, meet ups, etc.

more advanced harvesting of opportunities

3. Align your business as close as possi-

increasingly over time. As a result of this sub

ble to the layer of network and pro-

chapter, value creation of blockchain-based

tocol solutions

business models is positively influenced

4. Focus the business type on an appli-

through the technology’s affordances by im-

cation platform by simultaneously

plementing five steps (see Figure 8):

providing a currency 5. Consider your timing. Rome was not built in a day – give the affordances time to yield a dominant design

AFFORDANCES OF PERMISSIONLESS BLOCKCHAINS ↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓ FOLLOW THESE STEPS TO INCREASE VALUE CREATION POTENTIAL 1) Build the value proposition around the opportunities of open-source development, token economy, and smart contracts 2) Increase the worth of goods together with the community. Therefore, it is indispensable to interact with the community through online channels, meet ups, etc. 3) Align your business as close as possible to the layer of network and protocol solutions 4) Focus the business type on an application platform by simultaneously providing a currency 5) Consider your timing. Rome was not built in a day – give the affordances time to yield a dominant design

↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓ VALUE CREATION OF BLOCKCHAIN-BASED BUSINESS MODELS Figure 8: Positive influence of blockchain’s affordances on the value creation of blockchain-based business models

59


This section approaches to answer the second sub-research question: Sub-research question 2: “How are the affordances of permissionless blockchains influence the value capture of blockchain-based business models?” As mentioned in the literature review potential value capture can only follow a successful value creation. Therefore, the section of value capture implies a reasonable application of the technology’s affordances. The literature review revealed that value capture for blockchain-based business models is split into two categories: value capture through monetising users and value capture through investments. Both ways of capturing value are equally pursuable and are not mutually exclusive. designed to capture value through monetising users. However, it could not be neglected that the costs of blockchain-based The

already

business have to be covered in some way.

showed that revenue streams through mon-

For this purpose, blockchain-based business

etising users is exactly the opposite of what

models might not create profit through

blockchain aims to achieve (cutting interme-

monetising users but the revenue streams

diaries) and therefore, leads to unprofitable

are supposed to cover the costs. Those rev-

consequences for traditional business mod-

enue streams mainly include low pro-

els. In fact, monetising users is generally out

cessing fees and transaction fees. In

of the question as open-source development

order to capture this cost-covering value,

allows pricing competition to aim towards

the fees have to be very low as customers

zero. Few data findings about value capture

will not adopt to the blockchain technology

through monetising users confirmed the lit-

if they can send money for free on their

erature review; underlining that block-

bank account or via PayPal. This requires

chain’s

literature

whole

review

system

is

not 60

Chapter 5 - Discussion blockchain’s affordances to become techno-

market of blockchains and ICOs as almost

logically more developed.

saturated since the value capture potential through ICOs began to decrease. On the other hand, interviewee B emphasised that once there is a commercial solution for investing in blockchain due to sufficient regu-

What is left is value capture through

lations, it is expected to see an immense fi-

investments which can be achieved through

nancial upsurge in the blockchain ecosys-

three different ways.

tem. Either way, it is inevitable that permis-

The literature review presented the

sionless blockchains create more value as up

first method of value capture, which can be

to date to make value capture through in-

described as a return of investment. The

vestments sustainable. If reasonable value

findings confirmed the literature review, ex-

creation fails to appear, permissionless

plaining that it seems reasonable for the

blockchains only represent an object of

blockchain’s founders to attribute a certain

speculation, where investors invest with the

amount of coins to themselves during the

prospect of an increase in value only be-

creation of the blockchain’s genesis block. If

cause more investors invest.

users eventually find value in the blockchain

The final means to capture value

they will buy the tokens. As a result, demand

through investments is by receiving do-

will increase the token’s value which can be

nations. This requires essential partner-

captured consequently. The increase in

ships and a strong and large community.

value of this digital currency will be required to cover subsequent increases in costs. The second way of capturing value through investments was not covered in the literature review and became evident through the findings. As described in the findings it is possible to receive funding for a new blockchain business by individuals from all over the world through an ICO. ICOs became a common tool for financing blockchain-based businesses but on the downside, one interviewee considered the 61

Chapter 5 - Discussion discussion about the layers could not be clarified in the literature review. Considering the return of investment, Monegro (2016) states that this potential is concentrated at the layer of network and protocol solutions. Bruhkman (2017) disagrees and Value capture potentials can be very

states that value capture potential through

different in regard to the combination of

investments is distributed among all layers.

layer-and-type. The literature review as well

The findings could not resolve this particu-

as the data collection, mainly reviewed the

lar ambiguity in defining where the return

layers of applications and network and protocol

of investment is potentially higher but ac-

solutions, leaving the value capture models

cording to some interviewees the network

for the remaining layers unclear. In respect

and protocol layer is more stable than the

to value creation it was discussed that all lay-

layer of applications making the businesses

ers are essential and inter-depended but this

with network and protocol solutions more

does not apply to value capture. The two

valuable.

layers are potentially what is explored the

The findings about capturing value

most and for the remaining layers there are

through funding were more significant.

no profound value capture mechanisms

Blockchain-based businesses, especially on

identified so far.

the layers of applications and network and

Value capture through mone-

protocol solutions, utilise ICOs almost by

tising users seems to be equally feasible or

default in order to fund their business. In

not feasible in both layers of applications

particular Ethereum’s platform is very fa-

and network and protocol solutions. The lit-

mous for conducting ICOs; enabling busi-

erature review as well as the findings sup-

nesses to build their blockchain solution on

ported this evaluation underlining that the

top and offering their tokens by means of

open-source element of blockchain allows

the “ERC-20 token” (?).

the price competition to decrease margins

In conclusion, it seems like the most

until the minimum. Furthermore, the eco-

opportunities for value capture are at the

system of permissionless blockchains is sup-

network and protocol layer as this is where

posed to be self-sustaining and decentralised

the six most promising blockchain-based

applications entirely autonomous.

business models are located. Furthermore,

Value capture through invest-

the findings revealed that most of the trust

ments appear more promising but the

in the young technology lies at this layer, 62

Chapter 5 - Discussion which may also increase the potential for

technology and user need time to be de-

donations. The network and protocol layer

fined. It remains to be seen, how value cap-

represents blockchain’s core and hence, is

ture potentials develop in the future as the

part of what we know best about the tech-

direction that blockchain’s ecosystem is tak-

nology at the current stage. Applications

ing is not clear yet.

with really high adoption have not been suc-

As a result, value capture of block-

cessfully established yet and as a result, peo-

chain-based business models is positively in-

ple perceive the layer of network and proto-

fluenced through two categories and a total

col solutions as most promising – assuming

number of five key factors (see Figure 9):

a higher capture at this layer.

1. Value capture through monetising users a. Low processing fees b. Transaction fees 2. Value capture through investments

Once again, the social context of

or donations

blockchain’s affordances plays an important

a. ICO investments

role in order to make the business grow suc-

b. Increase in value of own

cessfully. The potential paradigm shift in

crypto-token

value capture has a disruptive character and therefore,

the

relationship

c. Donations from key partners

between

and community

AFFORDANCES OF PERMISSIONLESS BLOCKCHAINS ↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓ FOLLOW THESE STEPS TO INCREASE VALUE CAPTURE POTENTIAL 1) Value capture through monetising users a) Processing fees b) Transaction fees 2) Value capture through investments or donations a) ICO investments b) Increase in value of own crypto-token c) Donations from key partners and community

↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓ VALUE CREATION OF BLOCKCHAIN-BASED BUSINESS MODELS Figure 9: Positive influence of blockchain’s affordances on the value capture of blockchain-based business models

63


This section approaches to answer the third sub-research question: Sub-research question 3: “How are the affordances of permissionless blockchains influence blockchain-based business models in regard to traditional business model theory?”

The literature review showed that block-

of blockchain. For this purpose, Osterwal-

chain technology yields novel forms of busi-

der’s and Pigneur’s business model defini-

ness models, value creation mechanisms,

tion is discussed critically in the context of

and value capture mechanisms (Zott &

blockchain, and in order to assess the stated

Amit, 2009) and it has to be clarified if fun-

hypothesis.

damental attributes of traditional business model theory changed through the impact “A description of the value a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, in order to generate profitable and sustainable revenues streams.” (Osterwalder & Pigneur, 2010) Blockchain-based business models as pre-

throughout the world. Governance is dis-

sented in the findings can appear rather in-

cussed critically and strong advocates of

eligible for this definition, regarding the

blockchain want pure decentralisation

meaning of (1) a company and (2) profitable and

through the absence of any hierarchies and

sustainable revenue streams for the following

open-source development. Established de-

reasons: Firstly, it is assessed if a blockchain

centralised organisations are similar but still

(blockchain-based businesses) can be con-

different as in blockchain, most of the com-

sidered as a company. Blockchains are de-

munity is contributing anonymously. Nev-

centralised and anonymously maintained

ertheless, not every contributor is part of the

by a large community that is located

company 64

–

the

blockchain

has

no

Chapter 5 - Discussion obligations towards the community in re-

are open-source and connect users peer-to-

gard to wages, taxes, insurances, etc. This

peer; as shown in the findings as well as in

novel form of business decentralisation de-

the section of value capture, revenue

viates from the definition of a company as a

streams through monetising users are only

legal entity of individuals conducting a com-

sufficient in order to cover the costs and be

mercial or industrial enterprise (British

sustainable. Profit has to be generated dif-

government, 2006; Lehman & Phelps,

ferently and as shown above the only option

2005). As a result, company structures and

at the current stage is to capture value

governance need to be replaced through

through investments and donations. How-

foundations that influence the blockchain

ever, profit is no obligation in order to be

from the background. However, the find-

considered as a company. As a matter of

ings showed that some hierarchies, struc-

fact, non-profit organisations, such as the

tures, and roles, are still present in the social

blockchain’s foundations, are considered as

context of blockchain and moreover, could

viable business models and therefore, no se-

provide information about all kind of com-

rious contradictions to the business model

pany related elements without big difficul-

definition of Osterwalder & Pigneur (2010)

ties. Indeed, it is questionable if this suffices

could be identified. Blockchain-based busi-

to define a blockchain as a company but the

ness models are indeed a very specific ex-

technology is also still in its infancy. To the

pression of traditional business model the-

best knowledge of the researcher, existing

ory but nothing that goes beyond.

literature does not provide any research that explains these implications and as a result, it can be expected that blockchains evolve in either one out of the following three directions: (1) towards a more traditional image of a company, (2) towards a universal good similar to the internet, or (3) towards something entirely new that we are not capable to think of at this point in time. Secondly, it is assessed if blockchainbased businesses generate profitable and sustainable revenue streams. In contrary to traditional business model theory, the decentralisation leads to business models that 65


Chapter 6

CONCLUSION

66

-

6 Based on a multi-method qualitative multiple case study analysis, this dissertation sought to answer the business problem of how blockchain-based businesses can create and capture value in the ecosystem of permissionless blockchains by understanding the technology’s affordances. This business problem was addressed through three sub-research questions derived from the literature review regarding the specific influence of blockchain’s affordances on value creation, value capture, and applicability of traditional business model theory on blockchainbased businesses.

potential is on the network and protocol

The findings in Chapter 4 and the

layer. This might be because this layer is

subsequent discussion in Chapter 5, re-

what is known best – the technology is still

vealed that the affordances of permissionless

young and that is the layer where most of

blockchains are different depending on the

the development takes place at this point in

context. As a result, various opportunities,

time. Irrespective of the reasons, in compar-

constraints, and solutions appear and influ-

ison to the other layers of the blockchain

ence the value creation and value capture of

stack, the layer of network and protocol so-

blockchain-based business models.

lutions is standing out offering the most po-

The first sub-research question set

tential for value creation and value capture.

out to explore how the affordances of per-

Furthermore, blockchains with a focus on

missionless blockchains influence the value

providing an application platform seem to

creation of blockchain-based business mod-

create higher value than the blockchains

els. Firstly, the value proposition should be

that focus their value proposition solely on

built around blockchain’s opportunities, es-

cryptocurrency. Lastly, only time will tell if

pecially regarding the technology’s key fea-

technical

tures. Secondly, interaction with the com-

constraints

of

permissionless

blockchains can be overcome to actually

munity through online channels and

create value.

meetups, represents a key activity for value

The second sub-research question

creation. Thirdly, the data collection re-

searched for patterns to identify how the

vealed that the highest value creation 67

Chapter 6 - Conclusion affordances of permissionless blockchains

one of the following three directions: (1) to-

influence the value capture of blockchain-

wards a more traditional image of a com-

based business models. Value capture of

pany, (2) towards a universal good similar to

blockchain-based business models is distin-

the internet, or (3) towards something en-

guishable into value capture through mone-

tirely new that we are not capable to think

tising users and value capture through in-

of at this point in time.

vestments or donations. A major finding is that traditional business models cannot be easily applied on permissionless block-

The business problem was ad-

chains, as open-source development and de-

dressed on behalf of the blockchain-based

centralisation prevent most of the value cap-

start-up Rublix. Therefore, the following

ture potential.

recommendations attempt to provide a

The third sub-research question an-

guideline particularly for Rublix, but also

alysed how the affordances of permissionless blockchains

influence

for other interested parties. This guideline

blockchain-based

can be used in order to build a business

business models in regard to traditional

model strategy that can be applied to take

business model theory. The significant con-

advantage of opportunities, overcome con-

tradiction of blockchain-based business

straints, and create and capture block-

models and traditional business model the-

chain's full value potential.

ory lies in the definition of a business model as part of a company with profitable and sustainable

Recommendation on Rublix’s business

revenue streams. A permissionless blockchain is

model strategy

a public distributed database – everything

The data collection and in particular the

that is created around this blockchain is a

comparison of the six most promising block-

result of the work of many people from all

chain-based business models revealed cer-

over across the globe. There is no company

tain aspects that should be considered in the

in existence, creating profitable and sustain-

core-elements of Rublix’s blockchain-based

able revenue streams in the way traditional

business model:

companies would do. Interestingly, the data

1) Value proposition

collection could nevertheless provide infor-

First of all, the results showed that network

mation about all kinds of company related

and protocol solution in combination with

elements in regard to blockchain-based

an application platform and underlying

business models without large difficulties.

cryptocurrency provides the highest value

Therefore, blockchains will evolve in either

creation and capture potential. However, 68

Chapter 6 - Conclusion building an own permissionless blockchain

technology according to the business’ value

at this point in time is extremely risky as the

proposition.

market is already saturated and dominated

3) Key activities

by the established blockchains. Neverthe-

In order to acquire these key resources, the

less, the field of permissionless blockchains

business needs to interact with the commu-

is still very young and innovation potential

nity through online channels and meetups.

is certainly exploitable. This requires a spe-

Moreover, solutions to the constraints can

cific use case that goes beyond the funda-

only be implemented by the founders until

mentals of blockchain’s value proposition;

the product is launched. Afterwards the

including open-source development, token

worth of goods is increased solely through

economy, smart contracts, and the reduc-

the community as decentralisation distrib-

tion of intermediaries through trust. There-

utes the decision-making progress. Conse-

fore, it is required to think outside the box

quently, it is emphasised that the interaction

of traditional business models, as they

with the community represents a key activ-

proved to not work on the blockchain. If this

ity for value creation. In addition, software

use case requires blockchain’s affordances

development and research and develop-

to be applied in a way that high interaction

ment are important key activities. Lastly, it

with the blockchain is required, some tech-

is highly recommended to undertake com-

nical approaches should be considered.

pliance measures in order to cope with legal

These include the choice between various

issues – if not handled appropriately the le-

consensus rules that evolved over time to

gal frameworks could become a major

achieve the most efficient and secure shared

thread to the business.

consensus about the state of the database,

4) Key partners

off-chain transactions, sharding, dynamic

After the blockchain is launched and the

block sizes, segregated witness, zero-

network influences or overtakes the deci-

knowledge proofs, and more.

sion-making progress, some governance is

2) Key resources

required. Current blockchain-based busi-

All these technical decisions require highly

ness models have a non-profit foundation

skilled human capital that is very scarce in

working on the blockchain in the back-

the field of blockchain as the technology is

ground and therefore, represent a key part-

young and demand is high. As a result, full

ner. Furthermore, the community needs to

stack developers and the community be-

provide miners or validators that maintain

come key resources as they develop the

the shared consensus. If necessary, developers, wallets, and donors from outside need 69

Chapter 6 - Conclusion to be considered as key partners. Other key

blockchain are still decentralisation and

partners, such as established traditional

trust and therefore, the relationships are not

companies are very important in order to

between customers and business but more

market the value proposition and capture

among the users themselves. This facilitates

value.

a transparent, self-sufficient exchange of in-

5) Customer segments

formation.

As mentioned in the paragraph of value

7) Customer channels

proposition, it is important to specify the

Common channels that can be recom-

business model towards a certain niche

mended in this context are the company’s

where innovation potential has not been ex-

website, code repositories, social networks,

ploited yet. According to this niche the cus-

messengers, meet ups, and more. Anything

tomer segment is narrowed down and can

is possible as long as a free and public com-

be identified. If the blockchain-based busi-

munication among a high number of partic-

ness targets a widespread adoption beyond

ipants is facilitated.

IT and crypto-community, developers, and

8) Cost structure

few enterprise software companies, it is very

As the blockchain-based business is founded

important to comply to regulations, provide

and developed further many costs will ap-

complete security, and implement a reason-

ply. The major cost points are web mainte-

able mode of governance. Only then estab-

nance, hosting and bandwidth, software de-

lished companies will consider the utilisa-

velopment, IT systems and cybersecurity,

tion of this blockchain in their business.

full stack developers, research and develop-

However, what is desired by established

ment, legal compliance, events, and confer-

companies (governance, regulation, secu-

ences. It is recommended to have sufficient

rity) is refused by other parties in the field of

funds as the costs of founding and develop-

blockchain as these values usually imply

ing a blockchain-based business are at least

some kind of central authority. That is

as high as with any other fintech start-up.

where a balance between security and con-

9) Revenue streams

trol needs to be managed and is usually

At some point the cost coverage requires the

achieved through innovative approaches in

business to capture some kind of value.

technology such as the rules of consensus.

Value capture postulates a successful value

6) Customer relationships

creation and only then the blockchain-

The relationships to customers of the block-

based business is capable of receiving finan-

chain should be handled without creating a

cial resources from outside. Value capture

central authority. The core values of

of blockchain-based business models is 70

Chapter 6 - Conclusion distinguishable into value capture through

solutions to the constraints are not proven

monetising users and value capture through

to work yet. A strong team and a large com-

investments or donations. The value cap-

munity are needed to cope the challenges in

ture potential through monetising users is

programmability and interoperability. Fur-

decreased to a minimum as open-source de-

thermore, the business should take care that

velopment and decentralisation prevents

regulations are not mistreated and that a

most of the value capture potential. New

reasonable mode of governance is provided

ways of value capture through investments

for maintaining and developing the block-

can be promising since ICOs, an increase in

chain. However, even if the blockchain-

investment value, and donations are reason-

based business model follows all these rec-

able replacements for profitable and sus-

ommendations, overcomes constraints and

tainable revenue streams. Contrary to the

exploits opportunities, mass adoption of

initial boom in ICOs the recommendation

permissionless blockchains will not be

is to concentrate on human capital, product

achieved as long as related regulations are

development, marketing and strategic part-

not clearly defined by law. The market of

nerships. The next round of fundraising is

established companies and investors is not

potentially more profitable when the work-

ready for permissionless blockchains unless

ing product and user base is in existence.

the legal framework, appropriate govern-

However, the findings in Chapter 4 and the

ance, and sufficient trust through security

subsequent discussion in Chapter 5, re-

are given. Moreover, the market is already

vealed that the ecosystem of permissionless

very saturated and innovation potential has

blockchains is not particularly sophisticated

to be found beyond of what is already

in order to capture value.

known. This leads to the last point of this

10) Final remarks

recommendation – timing. Apart from all

In conclusion, against the conception that

recommendations, timing is the most im-

emerged through blockchain’s hype, the

portant one. The number of ICOs in-

technology does not solve everything. There

creased immeasurably during the past years

is a certain context in which it makes sense

and competition is very high in the industry

to apply business cases on permissionless

of (generic) permissionless blockchains. Sta-

blockchains but for other problems it might

tistical market trends looked favourably in

not be the right solution. Business solutions

the past but it is controversial if this still

in this field that require high interaction

given for future growth. Eventually, every-

rates with the blockchain and high storage

thing might depend on the technical solu-

solutions are very risky as the potential

tions to the constraints and if they are 71

Chapter 6 - Conclusion successful or not. There is uncertainty about

model theory is applicable to the field of

these technical approaches and it can only

permissionless blockchains or not. The eco-

be clarified in the future if the theoretical

system has not gathered clear characteristics

considerations exceed the test runs and

yet, which leaves room for further research.

work under real conditions with high adop-

With the same note, future study could also

tion. The market and the economy have

develop interesting concepts if blockchains

only just begun to understand what block-

evolve towards a more traditional image of

chain is but many do not know yet what to

a company, towards a universal good simi-

use it for. Only a customised blockchain so-

lar to the internet, or towards something en-

lution with a specific use case that over-

tirely new that we are not capable to think

comes all constraints and exploits a set of

of at this point in time. In addition, the con-

valuable opportunities, will be able to create

ceptual framework can be expanded

and capture value in the long term.

through examining the constructs, looking at particular relationship aspects, or adding new variables to the framework. For example, future research could focus on the business context and its influence on block-

There are some limitations of this

chain’s affordances. Finally, the rapidly de-

research and possibilities for further re-

veloping field of blockchain results in emer-

search. Firstly, this dissertation was subject

gence of new theories and the conceptual

to a three months’ time constraint and

framework needs to be re-evaluated as time

therefore, only provides a snapshot of a very

goes by.

young and rapidly developing technology. A longitudinal research can be done to further extend the value creation and capture model of blockchain-based businesses in the field of permissionless blockchains. Such research could include case study research or observational studies to identify the factors that influence value creation and value capture over time. At the same time, it would be interesting to see how the advancements in technical solutions remove constraints and consequently result in new value creation and capture modes. Secondly, it was

not anticipated whether traditional business 72

Chapter 6 - Conclusion

73

Chapter 6 - Conclusion

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References

APPENDIX

82

Appendix -

Table 14: Glossary #

WORD

DEFINITION

Application token

Application token is a unit of value issued by a tech or crypto start-up, intended to be a piece in the ecosystem of their application (Bitcoin Wiki, 2018),

Block

Block is a permanently recorded file containing information on occurred transactions. Blocks have a limited file size and are added to the end of the chain in all cases. The chain contains all blocks and transactions and is called blockchain. Each block contains information about everything that happened in previous blocks before it was created (Bitcoin Wiki, 2018).

Blockchain

Blockchain is a cryptographically secured, time-stamped, public and distributed database (Bitcoin Wiki, 2018).

Blockchain ecosystem

The blockchain ecosystem is a business ecosystem and contains all types of blockchain-organisations that interact with each other.

Blockchain protocol

Protocols are the set of rules that govern the network. Blockchain protocols usually include rules about consensus, transaction validation, and network participation (Jovanovic, 2018).

C

Chain

The Chain contains all blocks and transactions and is called blockchain (Bitcoin Wiki, 2018).

D

Decentralised application (DApp)

A decentralised application (DApp) is an application that is open source, operates autonomously, has its data stored on a blockchain, incentivised in the form of cryptographic tokens and operates on a protocol that shows proof of value (OpenLedger, 2018).

A

B

E

F

ERC-20 token

ERC-20 is the universal language that all tokens on the Ethereum network use. It allows one token to be traded with another (William, 2018).

Ether

Ether is to be treated as the cryptocurrency of Ethereum (Ethereum, 2018).

Fork

Fork may refer to: (1) Hardfork, a change to the protocol that makes previously invalid events valid or (2) Softfork, a change to the protocol that would only invalidate previous transactions (Bitcoin Wiki, 2018).

G

83

Appendix

Hardfork

A hard fork is a change to the blockchain protocol that makes previously versions invalid. If older versions continue running, they will end up with a different protocol and with different data than the newer version which leads to possible errors (Coindesk, 2018).

HTTP

The Hypertext Transfer Protocol is an application protocol for distributed, collaborative, and hypermedia information systems. HTTP is the foundation of data communication for the World Wide Web (Wikipedia, 2018).

Initial coin offering (ICO)

Initial coin offerings (ICOs) – also called token sales or crowd sales – are an unregulated, fast, high-risk, and commonly Ethereum-based crowdfunding mechanism for early-stage digital asset ventures (Bitcoin Wiki, 2018).

Miner

Miners validate new transactions and record them on the blockchain (Cosset, 2018).

Mining

Mining is the process by which transactions are verified and added to the blockchain. The main mining objective is reaching a consensus between network nodes on which transactions consider legitimate (Bitcoin Wiki, 2018).

Node

Node is a computer that connects to a blockchain (Bitcoin Wiki, 2018).

Open-source de-

The open-source model is a decentralised software-development model that encourages open collaboration (Wikipedia, 2018).

H

I J K L

M

N O

velopment

Peer-to-peer

Peer-to-peer is the peer decentralised computer network. It is based on the equal rights of all participants. Such a structure makes the network more secure, as there is no possibility to block off its separate servers – all the participants of the network are both servers and clients (Bitcoin Wiki, 2018). The sole distinction between public and private blockchain is related to

P

Permissioned blockchain (private blockchain)

who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger. A private blockchain network requires an invitation and must be validated by either the network starter or by a set of rules put in place by the network starter (Jayachandran, 2018). The sole distinction between public and private blockchain is related to

Permissionless blockchain (public blockchain)

Protocol token

who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger. A public blockchain network is completely open and anyone can join and participate in the network (Jayachandran, 2018). Protocol token is a unit of value issued by a tech or crypto start-up, intended to be a piece in the ecosystem of their network and protocol (Bitcoin Wiki, 2018).

Q R

84

Appendix Sidechain

Sidechain is a method of separation blockchains. Instead of using only primary blockchain, a user now can transfer his digital assets to a supplemented one (Bitcoin Wiki, 2018). Sharding is one of the scaling strategies for (decentralised) databases.

Sharding S

Within the strategy, the information from the general database is divided into blocks and spread to various servers, which are called shards (Bitcoin Wiki, 2018).

Smart contract

Smart contract (also self-executing contract, blockchain contract, or digital contract) is an electronic algorithm intended for the automation of the contract execution process in the blockchain. The general idea of smart contracts is to exclude divergences in the treatment of the agreement terms by the entered parties (Bitcoin Wiki, 2018).

Softfork

A soft fork is a change to the blockchain protocol that keeps previously versions valid. If older versions continue running, they will still work with the same protocol (Coindesk, 2018).

TCP/IP

The Internet protocol suite is the conceptual model and set of communications protocols used on the Internet and similar computer networks. It is commonly known as TCP/IP because the foundational protocols in the suite are the Transmission Control Protocol (TCP) and the Internet Protocol (IP) (Wikipedia, 2018).

Token

Token is a unit of value issued by a tech or crypto start-up, intended to be a piece in the ecosystem of their technology platform or project (Bitcoin Wiki, 2018).

Validators

Validators are responsible for committing new blocks in the blockchain. These validators participate in the blockchain specific consensus protocol (GitHub, 2018).

Whitepaper

White paper is an official document usually issued by new blockchain projects before their ICO informing the reader about the new technology, methodology, product or service being launched (Bitcoin Wiki, 2018).

T

U V

W X Y Z

Table 14: Glossary

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Appendix

-

Data analysis of business models in the blockchain ecosystem: The elements of the proposed framework (business models in the ecosystem of permissionless blockchains) are built by means of secondary documentary data, categorised through an inductive approach. The following Tables (beginning on the next page) provide an overview of the sources and their particular impact on the individual components of the framework (Literature Review; Page 13: Figure 2).

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Appendix Table 15: Overview of sources and their impact on the proposed framework GROUP Blockchain Technology Core Features

Layers of Blockchain-Based Business Models

Typology of BlockchainBased Business Models

Blockchain-Related Business Models

ELEMENT

SOURCE

Distributed Ledger

(Wirdum, 2016; Xiao, 2016; Rückeshäuser, 2017; Elsden, et al., 2018)

Consensus Algorithms

(Wirdum, 2016; Xiao, 2016; Deloitte Touche Tohmatsu India LLP, 2017; Filippi, 2018; Elsden, et al., 2018)

Immutable Storage

(Xiao, 2016; Elsden, et al., 2018)

Data and Infrastructure Providers

(Rückeshäuser, 2017; BlockchainHub, 2017; Deloitte Touche Tohmatsu India LLP, 2017; Filippi, 2018; Elsden, et al., 2018)

Network and Protocol Solutions

(BlockchainHub, 2017; Deloitte Touche Tohmatsu India LLP, 2017; Filippi, 2018)


(Wirdum, 2016; Rückeshäuser, 2017; BlockchainHub, 2017; Deloitte Touche Tohmatsu India LLP, 2017; Filippi, 2018)

Applications

(Wirdum, 2016; Xiao, 2016; Rückeshäuser, 2017; BlockchainHub, 2017; Deloitte Touche Tohmatsu India LLP, 2017; Filippi, 2018)

Currency

(Elsden, et al., 2018)



Financial Services


Platform

(Elsden, et al., 2018; BlockchainHub, 2017)

Governance


Proof-as-a-service


Identity Management


Supporting or Supplementing Service Provider

(Rückeshäuser, 2017)

Development Facil(Rückeshäuser, 2017) itator Table 15: Overview of sources and their impact on the proposed framework

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Appendix Table 16: Analysing source A – (Wirdum, 2016) à Technology focus on Bitcoin’s 4 layers LAYER

NAME

DESCRIPTION

IMPACT

Consensus Rules

The rules establish among other things the amount of bitcoins included in the block reward, the mining difficulty, the type of proof-of-work required, and, indeed, the block size limit. Important because every node has to apply same rules. Ensures that all nodes maintain an identical copy of the blockchain.

Blockchain technology core features: Consensus Algorithms

Layer 2

Peer-to-peer

Covers how full nodes share data and what data they share. This includes protocol rules to send and receive transactions and blocks, as well as special data packages.

Blockchain technology core features: Distributed Ledger

Layer 3

Application Programming Interfaces and Remote Procedure Calls

Communications layers on top of the peer-topeer protocol. Many Bitcoin software applications – such as mobile wallets and block explorers – communicate with the blockchain through these layers by connecting to an API or software library.

Layers of blockchain-based business models: Services and Application Frameworks

Applications

Refers to how Bitcoin software applications create and use certain types of data that doesn’t really touch the network directly.

Layers of blockchain-based business models: Applications

Layer 1

Layer 4

Table 16: Analysing source A – (Wirdum, 2016)

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Appendix Table 17: Analysing source B – (Xiao, 2016) à Technology focus on Bitcoin’s 5 layers LAYER

NAME

DESCRIPTION

IMPACT

Consensus Layer

A protocol that describes the format of a ledger that is publicly visible and a consensus function that anyone can use to determine which of multiple candidate ledgers is the consensus ledger. The protocol must also allow new blocks to be added to the ledger.


Mining Layer

A protocol that incentivizes parties to maintain the consensus and add blocks to the ledger.


Propagation layer

A protocol that determines how the ledger and blocks are transmitted between nodes in the network.


Layer 4

Semantic layer

A specification of how new blocks must relate to previous blocks and a protocol for verifying conformity with the specification.

Blockchain technology core features: Immutable Storage

Layer 5

Application layer

Application code that implements some desired functionality.


Layer 1

Layer 2

Layer 3

Table 17: Analysing source B – (Xiao, 2016)

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Appendix Table 18: Analysing source C – (Rückeshäuser, 2017) à Business model focus on blockchain BUSINESS MODEL

NAME

DESCRIPTION

IMPACT Layers of blockchain-based business models: Data and Infrastructure Providers

Data infrastructure provider

Typically, these businesses provide a distributed ledger as mere database and decentralised storage.

Business Model 2

Development facilitator

Mainly responsible for platformbased development.

Layers of blockchain-related business models: Development Facilitator

Business Model 3

Integration enabler

Services concentrated on application-based integration.


Business Model 4

Application provider

Offer fixed applications without the possibility for customisation.


Business Model 5

Supporting or supplementary service provider

Customers benefit from the professional experience and capital to build open protocol ventures for the realisation of blockchain projects.

Layers of blockchain-related business models: Supporting or supplementary service provider

Business Model 1

Table 18: Analysing source C – (Rückeshäuser, 2017)

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Appendix Table 19: Analysing source D – (BlockchainHub, 2017) à Business model focus on blockchain BUSINESS MODEL

NAME

DESCRIPTION

IMPACT

Business Model 1

Blockchain as a Service (BaaS)

Setting up an environment to test and research blockchain requires an ecosystem with multiple systems to be able to develop research and test.

Layers of blockchainbased business models: Data and Infrastructure Providers

Business Model 2

Blockchain First

Work with the given blockchain tools and stack. Assembly is required, as many of the technologies are still developing and evolving.

Layers of blockchainbased business models: Network and Protocol Solutions

Development Platforms

Here, you don’t start with a preference for a blockchain. Rather, you start with a development approach orientation, and you build an app that backs into a blockchain infrastructure that could be served in the cloud.

APIs & Overlays

This approach uses the blockchain as an asset, ownership or identity-binding infrastructure, and you build applications with a specific focus on chains of proof, ownership rights, title registries or other specific services with a built-in trust-based component.

Business Model 3

Business Model 4

Table 19: Analysing source D – (BlockchainHub, 2017)

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Layers of blockchainbased business models: Services and Application Frameworks Typology of blockchain-based business models: Platform

Layers of blockchainbased business models: Applications

Appendix Table 20: Analysing source E – (Deloitte Touche Tohmatsu India LLP, 2017) à Business model and technology focus on blockchain LAYER / BUSINESS MODEL Layer 1 / Business Model 1 Layer 2 / Business Model 2

NAME

DESCRIPTION

IMPACT

Infrastructure Layer

Blockchain as a service or inhouse infrastructure to operate the nodes

Layers of blockchain-based business models: Data and Infrastructure Providers Layers of blockchain-based business models: Network and Protocol Solutions

Network and Protocol

Network participation requirement, base protocol, and method of consensus

Layer 3 / Business Model 3

Services Layer

Blockchain services to enable operation of the application and connection to other technology



Application Layer

Customer interaction, business logic, and user interface design


Table 20: Analysing source E – (Deloitte Touche Tohmatsu India LLP, 2017)

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Appendix Table 21: Analysing source F – (Filippi, 2018) à Business model and technology focus on blockchain LAYER / BUSINESS MODEL




NAME

DESCRIPTION

IMPACT

Internet Layer

Specifically, blockchain-based networks like bitcoin and ethereum operate on top of the internet and ultimately depend on protocols like the TCP/IP, which is responsible for routing and transferring packets of information between different nodes on the network. These blockchain-based networks thus cannot operate without internet connectivity.

Layers of blockchainbased business models: Data and Infrastructure Providers

Blockchain Layer

While ISPs are responsible for routing packets through the internet, according to specific protocols (e.g., TCP/IP and BGP), miners on a blockchain-based network are responsible for validating and recording transactions into the underlying blockchain, according to a particular protocol (e.g., the bitcoin protocol).

Layers of blockchainbased business models: Network and Protocol Solutions

Even if Dapps can be designed to be completely autonomous—in the sense that no single party has the power to control or influence their operations—they remain affected by the operations of the underlying blockchain network and the specific set of

Layers of blockchainbased business models: Services and Application Frameworks

protocols that establish its modus operandi.

based business models: Applications

Application Layer

Table 21: Analysing source F – (Filippi, 2018)

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Layers of blockchain-

Appendix Table 22: Analysing source G – (Elsden, et al., 2018) à Typology of seven classes of blockchain applications APPLICATION CASE

DESCRIPTION

IMPACT

Underlying Infrastructure

Underlying protocols, decentralised application ecosystems, IoT architecture.

Currency

Payment services, internal currencies and utility tokens.

Financial Services

Asset management, investment trading, and crowdfunding.

Layers of blockchain-based business models: Data and Infrastructure Providers Typology of blockchain-based business models: Platform Typology of blockchain-based business models: Currency Typology of blockchain-based business models: Financial services

Notaries, registers and attestation, supply-chain management.

Typology of blockchain-based business models: Proof-as-a-service


Digital rights management, copyright and ticketing services.

Typology of blockchain-based business models: Property and ownership

Identity Management

Self-sovereign digital identity, and authentication.

Typology of blockchain-based business models: Identity management

Voting services, distributed autonomous organisations (DAO's).

Typology of blockchain-based business models: Governance

Proof-as-a-service

Governance

Table 22: Analysing source G – (Elsden, et al., 2018)

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Appendix Table 23: Analysing source H – (Elsden, et al., 2018) à Blockchain’s three core features CORE FEATURES

DESCRIPTION

IMPACT

Distributed ledger

A database shared between multiple actors who are all allocated read and write permissions


Immutable storage

Is where changes to the ledger, or transactions, are stored in ‘blocks’ and where each copy of the database retains every block in the ‘chain’ as an immutable history

Blockchain technology core features: Immutable Storage

Consensus algorithms

Are protocols for trustless actors in the network to verify the transactions made on the blockchain, and which achieve a secure, shared consensus about the state of the database


Table 23: Analysing source H – (Elsden, et al., 2018

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Appendix

-

Provision of Informed Consent Project Title Understanding the affordances of permissionless blockchains: value creation and capture potential for blockchain-based business models Researcher details Name: Sven Boettger Email: [email protected] Contact No: +49 172 2356183 – Skype: [email protected] Background of the study This study is part of my final dissertation for the MSc Entrepreneurship and Innovation at the University of Edinburgh Business School. Purpose and conduct of the study Blockchain’s affordances include neutral characteristics, opportunities, but also constraints; representing a potential challenge for blockchain-based business models. Therefore, a clear understanding of blockchain’s affordances is advantageous in order to create and capture value in the ecosystem of permissionless blockchains. This dissertation gives advice on how to make sense of blockchain’s affordances and compares blockchain-based business models. The business model comparison will reveal patterns of value creation and capture, highlighting how blockchain’s opportunities are seized to handle constraints most efficiently. The results are especially relevant for practitioners, for the reason that the achievement of a blockchain network and protocol that sets aside the constraints and still continues to provide the same standard of security would provide users excessive value. Being aware of this and understanding blockchain’s affordance, is the first step to build a business model strategy that increases the chances of success. Moreover, understanding market participants, their business models, and how they take advantage of opportunities, can help to anticipate blockchain’s rapid future developments and make a company stand out. Confidentiality The result of any interview is strictly confidential. Quotations from any discussions may be used in the final report but will be kept anonymously. In addition, participant participation is voluntary hence you are free to withdraw from the study at any time without question. Contact for further information For further information, you can always contact the Business School Postgraduate Office at [email protected] or my supervisor, Dr Raluca Bunduchi [email protected]. Thank you for your co-operation in this study.

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Appendix

-

Table 24: Aggregate dimensions, second-order themes, first-order categories DIMENSIONS

SECOND-ORDER THEMES à Neutral à Opportunities

FIRST-ORDER CATEGORIES à Definitions à Technological characteristics à Benefits à Industry potential à Scalability à Misapplication

à Constraints

à Governance à Human capital

Dimension 1:

à Programmability and interoperability

Blockchain

à Privacy and encryption

affordances (Phase 2)

à Regulations

à Financial regulations à Personal data regulations à Scalability à Misapplication à Governance

à Solutions and

à Human capital

trade-offs

à Programmability and interoperability à Privacy and encryption à Financial regulations à Personal data regulations

Dimension 2: Business model components (Phase 2)

Dimension 3: Value creation and capture (Phase 2) Sub-category 1: Blockchain-based business models (Phase 1)

à Value proposition

à Bitcoin, Ethereum, EOS, Stellar, NEM, Dash

à Key partners


à Customer relationship


à Customer segment


à Channels


à Key activities


à Key resources


à Cost structure


à Revenue streams


à Value creation mechanisms à Value capture mechanisms


à Value creation = opportunities à Layer à Value capture through monetising customers à Value capture through investments


Table 24: Aggregate dimensions, second-order themes, first-order categories

97

Appendix

-

Table 25: Original categories and units CATEGORIES

UNITS à Opportunities


à Constraints à Etc. à Value proposition à Key partners à Customer relationship à Customer segment


à Channels à Key activities à Key resources à Cost structure à Revenue streams

Value creation and capture

à Value creation mechanisms à Value capture mechanisms

Table 25: Original categories and units

98

Appendix

-

INTERVIEW 10 – INTERVIEWEE J PhD Student in System Security at Imperial College London 28th July 2018 Total length: 35 min - Beginning of conversation – Interviewer: Hi [Name]. Participant: Hi Sven. Interviewer: Nice to speak to you. Participant: How are thing going at your side? Interviewer: Yeah, it's going good, it's going good. I have been working on my dissertation for a while and I will submit it on the twenty third of August. So, this is one of my last interviews and I will start my data analysis soon. And yeah, it's amazing that you are taking the time to talk with me. Thank you so much.

99

Appendix Participant: No worries! I am happy to talk to you and I guess maybe it is the best if you give me a little bit of context as well so that I best know exactly what you are looking for here. Interviewer: I'm studying Entrepreneurship and innovation in my Master of Science degree at the University of Edinburgh and I basically want to find out how you can create and capture the most value with blockchain as a business. This should be interesting for practitioners or businesses in general such as established companies but in the end also for entrepreneurs as I'm studying entrepreneurship and innovation and therefore, focuses a little bit more on the entrepreneurial perspective. The underlying question is "how would you create the best blockchain at the moment and how is the mainstream blockchain developing?". This is the broad idea that I want to focus on. Nowadays 10 percent of blockchain is maybe related to business but 90 percent is still closely related to the technology side and that's why I need some expert interviews that can help me to understand this area better. Participant: Okay sure. That sounds great to me. So, I guess if you have any questions... Or how would you like to do things? Interviewer: Yes perfect. So, if you don't mind I would just like to ask you to briefly introduce yourself as well. Participant: lege in London. I'm working in the large-scale systems group. And in rency research. So, this stands for performance and scalability, hum security implications of blockchains, various different projects. Also 100

viewee

the last two and three years I've been doing blockchain and crypto cur-

Background of the inter-

Yeah sure, no worries. So, I'm currently a PhD student at Imperial Col-

Appendix

know: get much, much better performance, and much more attractive properties - essentially. So yeah, I've been working in a space for about

terviewee

effectively blockchains with various different other security models. You

three years now.

Background of the in-

working with trusted hardware. So, the notion of how can you combine

Interviewer: That's amazing. So, to start with: what do you think, from your experience, are the most promising public blockchains at the moment regarding the creation and capture of value? Participant: Yeah that's a good question. Hum, for me personally I guess there's a lot of variables to take into consideration right. Of course, you've got Value

at the moment. You know I remember adoption of blockchains. Hum,

creation

Ethereum you know - and I think a lot of people look at the popularity I am somewhat more of a balanced kind of person in the sense that I like to look at what are various different aspects. I guess if you ask the general population that question you're probably going to get answers

things but Bitcoin is a really, really good example. You got hum the over you know what changes should we make and how should we adapt to you know changing requirements around us. The problem that they

Constraints

Bitcoin network and you got all the developers deciding and arguing

face is that they just are not moving quickly enough, right. So, I don't

[…] Transcript continues

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Neutral

know if you heard about you know the block size debate?

Most promis-

blockchains that have the developments and make changes to these

model

a lot about sort of the history and the politics behind bitcoin and these

Business

nents

tion but it's more the team behind, right. So, I don't know if you know

compo-

the biggest impacts of this technology are not necessarily current adop-

ing block-

and it's been established for a while, right. Hum, but for me I think

chain-based

model

market value and there's a lot of adoption and there's things in there

business

like: well Bitcoin and Ethereum because they currently have the highest

Appendix

-

Following documents can be found on the CD attached: -

Transcripts from the interviews (fourteen transcripts)

-

Documents from the documentary analysis (twenty-four documents)

All documents (interview transcripts, video transcripts, articles, whitepapers, website extracts) have been read several times, highlighting the important information with NVIVO according to the most suitable code (as demonstrated in Appendix 6). The amount of data sources (total number of thirty-eight documents) provided a set of comprehensive information for each code, theme, and aggregate dimension, resulting in a fruitful set of findings as presented in Chapter 4 and discussed in Chapter 5.

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