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-
Sub-research question 2:
derstanding of blockchain’s affordances is
How are the affordances of permissionless
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
Sub-research question 3:
the context of both value creation and cap-
How are the affordances of permissionless
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
Chapter 1 – Introduction
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 1 – Introduction
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
Chapter 2 – Literature Review
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
Chapter 2 – Literature Review
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
Chapter 2 – Literature Review
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
Chapter 2 – Literature Review
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
Chapter 2 – Literature Review
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
Chapter 2 – Literature Review
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
Chapter 2 – Literature Review
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
Chapter 2 – Literature Review
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
Chapter 2 – Literature Review
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-
Sub-research question 1:
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
Chapter 2 – Literature Review
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
Sub-research question 2:
either called a “soft fork” (?) or a “hard fork” (?)
How are the affordances of permissionless block-
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
Chapter 2 – Literature Review
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-
Sub-research question 3:
ness models are a rather complex combina-
How are the affordances of permissionless block-
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
Chapter 2 – Literature Review
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
Chapter 2 – Literature Review
19
Chapter 2 – Literature Review
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-
business models 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
business models in the blockchain ecosys-
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
Chapter 3 - Methodology
Table 10: Overview documents for documentary analysis DOCUMENT
CATEGORY
TYPE
SOURCE
Document A
Business model components
Video transcript
Matt Lockyer
Document B
Business model components
Document
Vizologi
Document C
Business model components
Document
Vizologi
Document D
Blockchain affordances
Article
Jimmy Song
Document E
Blockchain affordances
Article
Preethi Kasireddy
Document F
Blockchain affordances
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 3 - Methodology
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
Chapter 4 - Findings
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
Chapter 4 - Findings
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
Chapter 4 - Findings
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
Chapter 4 - Findings
Chapter 4 - Findings
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 4 - Findings
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
Services and Application Frameworks
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
Chapter 5 - Discussion
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
Chapter 5 - Discussion
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 5 - Discussion
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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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
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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
85
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)
Services and Application Frameworks
(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)
Property and Ownership
(Elsden, et al., 2018)
Financial Services
(Elsden, et al., 2018)
Platform
(Elsden, et al., 2018; BlockchainHub, 2017)
Governance
(Elsden, et al., 2018)
Proof-as-a-service
(Elsden, et al., 2018)
Identity Management
(Elsden, et al., 2018)
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.
Blockchain technology core features: Consensus Algorithms
Mining Layer
A protocol that incentivizes parties to maintain the consensus and add blocks to the ledger.
Blockchain technology core features: Consensus Algorithms
Propagation layer
A protocol that determines how the ledger and blocks are transmitted between nodes in the network.
Blockchain technology core features: Distributed Ledger
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.
Layers of blockchain-based business models: Applications
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.
Layers of blockchain-based business models: Services and Application Frameworks
Business Model 4
Application provider
Offer fixed applications without the possibility for customisation.
Layers of blockchain-based business models: Applications
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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Blockchain technology core features: Distributed Ledger
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)
91
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
Layers of blockchain-based business models: Services and Application Frameworks
Layer 4 / Business Model 4
Application Layer
Customer interaction, business logic, and user interface design
Layers of blockchain-based business models: Applications
Table 20: Analysing source E – (Deloitte Touche Tohmatsu India LLP, 2017)
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Blockchain technology core features: Consensus Algorithms
Appendix Table 21: Analysing source F – (Filippi, 2018) à Business model and technology focus on blockchain LAYER / BUSINESS MODEL
Layer 1 / Business Model 1
Layer 2 / Business Model 2
Layer 3 / Business Model 3
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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Blockchain technology core features: Consensus Algorithms
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
Property and Ownership
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
Blockchain technology core features: Distributed Ledger
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
Blockchain technology core features: Consensus Algorithms
Table 23: Analysing source H – (Elsden, et al., 2018
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Appendix
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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 Bitcoin, Ethereum, EOS, Stellar, NEM, Dash
à Customer relationship
à Bitcoin, Ethereum, EOS, Stellar, NEM, Dash
à Customer segment
à Bitcoin, Ethereum, EOS, Stellar, NEM, Dash
à Channels
à Bitcoin, Ethereum, EOS, Stellar, NEM, Dash
à Key activities
à Bitcoin, Ethereum, EOS, Stellar, NEM, Dash
à Key resources
à Bitcoin, Ethereum, EOS, Stellar, NEM, Dash
à Cost structure
à Bitcoin, Ethereum, EOS, Stellar, NEM, Dash
à Revenue streams
à Bitcoin, Ethereum, EOS, Stellar, NEM, Dash
à Value creation mechanisms à Value capture mechanisms
à Blockchain-based business models with most promising concept
à Value creation = opportunities à Layer à Value capture through monetising customers à Value capture through investments
à Blockchain-based business models with most promising concept
Table 24: Aggregate dimensions, second-order themes, first-order categories
97
Appendix
-
Table 25: Original categories and units CATEGORIES
UNITS à Opportunities
Blockchain affordances
à Constraints à Etc. à Value proposition à Key partners à Customer relationship à Customer segment
Business model components
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
101
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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